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Education, Research, Teaching

Matlab Programs

Corso di Introduzione alla Microeconomia

Corso di Macroeconometria

Fiscal Foresight and the Effects

of Government Spending

Forni, M. and Gambetti, L..

mimeo, 2011

Abstract

The contribution of this paper is twofold. First, we investigate whether fiscal foresight poses an issue for the empirical analysis conducted with VAR models. The answer is yes: the government spending shock is non-fundamental for the variables commonly used in the VAR literature, so that its impulse response functions cannot be consistently estimated with a VAR. Second, we study the effects of government spending by using a structural, large dimensional, dynamic factor model. The key advantage of our approach is that this class of models is not affected by the non-fundamentalness problem. We find that the multiplier is above one in the short run and around zero in the long run.

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