Estimating the Effects of Fiscal Policy using a Novel Proxy Shrinkage Prior
| Autor: | Keweloh, Sascha A., Klein, Mathias, Prüser, Jan |
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| Rok vydání: | 2023 |
| Předmět: | |
| DOI: | 10.48550/arxiv.2302.13066 |
| Popis: | Different proxy variables commonly used in fiscal policy SVARs lead to contradicting conclusions implying that some of the exogeneity assumptions may not be fulfilled. We combine data-driven identification with a novel proxy shrinkage prior which enables us to estimate the effects of fiscal policy shocks without relying on strong assumptions about the validity of the proxy variables. Our results suggest that increasing government spending is a more effective tool to stimulate the economy than reducing taxes. Additionally, we provide evidence that the commonly used proxies in the literature are endogenously related to the structural shocks which leads to biased estimates. We construct new exogenous proxies that can be used in the traditional proxy VAR approach resulting in similar estimates compared to our proxy shrinkage model. Comment: 16 figures |
| Databáze: | OpenAIRE |
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