Are There Asymmetries in Fiscal Policy Shocks?

We empirically test the effects of unanticipated positive versus negative fiscal policy shocks on the growth rate and the cyclical component of real private output. In doing so, we employed two alternative approaches. The first one uses vector autoregressive systems in order to construct the identified fiscal policy shocks. From each employed systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These different types of unanticipated fiscal shocks were used next to empirically examine their effects on the growth rate and cyclical component of real private GNP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock. In the alternative approach we measure the impact of positive versus negative fiscal policy shocks on the real activity of the U.S economy via Generalized Impulse Response Functions in a Threshold VAR framework. The TVAR method reveals strong statistically significant non-linearities while the first method reports only weak evidences