Case studies have claimed that private consumption growth is higher during fiscal contractions due to the very fact that government spending is cut. Indeed, neoclassical theory has this implication. This paper uses regression analysis of a panel of 19 OECD countries and shows that this is not...

Instead of relying on descriptive statistics to evaluate the permanence of a fiscal contraction, this paper suggests that this issue should be studied using tests for structural breaks in cointegrating relationships between taxes and spending. We label a fiscal contraction as 'permanent' if a...

In this paper we examine, by means of Monte Carlo simulation, the properties of the so called 'Pantula principle' for the simultaneous determination of rank and deterministic components in a vector error correction model. Examining the five models contained within the Johansen methodology, we...

Recent theoretical research suggest that monetary shocks might play an important role in explaining movements in the real exchange rate in the short and medium run. Empirically, the contribution of transitory (monetary) disturbances in explaining the variance decomposition of real exchange rates...

Why do some fiscal contractions generate a favorable macroeconomic outcome while others do not? Using both descriptive statistics and regression analysis of 19 OECD countries for the period 1970-97, this paper finds that preceding depreciations are important for a favorable macroeconomic outcome...

We estimate a so called common trends model of federal taxes and spending in the U.S.. Using dates on presidential terms as well as the NBER business cycle, we are able to interpret the estimated permanent shock as being of structural policy origin and the transitory shock as being of (to...

This paper estimates how the US budget responds to shocks in taxes, spending and output. In particular, we consider the dynamic adjustment of the two budget components (taxes and spending) to such shocks. The recently developed Generalized Impulse Response Function, which takes the historical...