An Equilibrium Model of the Business Cycle With Household Production and Fiscal Policy

Abstract In this paper, we aim to analyze whether the effect of fiscal policy on economic growth in Algeria differs throughout the business cycle. To tackle this question, we use a Markov Switching Vector Autoregressive (MSVAR) framework. We find evidence of asymmetric effects of fiscal policy through regimes, defined by the state of the business cycle (recession and boom). The results show small positive government spending and revenue multipliers in the short term in both regimes. Most importantly, fiscal policy shocks have a stronger impact in times of economic recession than in times of expansion, which confirm the hypothesis of asymmetric effects. However, the impact of government spending is stronger than the impact of public revenue during recession periods. In addition, fiscal policy decision-makers interact with Anti-Keynesian view (pro-cyclical). Our results imply that there is something to gain by using the "right instrument" at the "right time".

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Risk Shocks

The American Economic Review ◽

10.1257/aer.104.1.27 ◽

2014 ◽

Vol 104 (1) ◽

pp. 27-65 ◽

Cited By ~ 493

Author(s):

Lawrence J. Christiano ◽

Roberto Motto ◽

Massimo Rostagno

Keyword(s):

Business Cycle ◽

General Equilibrium ◽

Equilibrium Model ◽

Dynamic General Equilibrium ◽

General Equilibrium Model ◽

Cross Sectional ◽

Dynamic General Equilibrium Model ◽

The Business Cycle ◽

Idiosyncratic Uncertainty ◽

Over Time

We augment a standard monetary dynamic general equilibrium model to include a Bernanke-Gertler-Gilchrist financial accelerator mechanism. We fit the model to US data, allowing the volatility of cross-sectional idiosyncratic uncertainty to fluctuate over time. We refer to this measure of volatility as risk. We find that fluctuations in risk are the most important shock driving the business cycle. (JEL D81, D82, E32, E44, L26)

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Characteristics of fiscal policy in Croatia: does it depend on the phase of the business cycle?

Public Sector Economics ◽

10.3326/pse.45.4.3 ◽

2021 ◽

Vol 45 (4) ◽

pp. 433-457

Author(s):

Vladimir Arcabic ◽

◽

Frane Banic ◽

Keyword(s):

Fiscal Policy ◽

Business Cycle ◽

The Business Cycle

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Taxes and the Structure of Production

Journal of Public Finance and Public Choice ◽

10.1332/251569298x15668907783175 ◽

1998 ◽

Vol 16 (2) ◽

pp. 145-159 ◽

Cited By ~ 1

Author(s):

Walter Block

Keyword(s):

Monetary Policy ◽

Fiscal Policy ◽

Interest Rate ◽

Business Cycle ◽

Time Preference ◽

Causal Relation ◽

Austrian Business Cycle ◽

The Business Cycle ◽

The Interest Rate ◽

Structure Of Production

Abstract In Austrian theory, the business cycle is caused by expansive monetary policy, which artificially lowers the interest rate below equilibrium rates, necessarily lengthening the structure of production. Can tax alterations also cause an Austrian business cycle? Only if they affect time preference rates, the determinant of the shape of the Hayekian triangle. It is the contention of this paper that changes in taxes possibly can (but need not) impact time preference rates. Thus there may be a causal relation between fiscal policy and the business cycle, but this is not a necessary connection, as there is between monetary policy and the business cycle. This is contentious, since some Austrians argue that there is a praxeological link between tax policy and time preference rates.

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Cyclical Fluctuation, Growth, and Stabilization: An Empirical Investigation of Dual Policy Objectives in Bangladesh

10.31219/osf.io/45fwz ◽

2020 ◽

Author(s):

Richmond Sam Quarm ◽

Mohamed Osman Elamin Busharads

Keyword(s):

Monetary Policy ◽

Fiscal Policy ◽

Business Cycle ◽

Interest Rates ◽

Money Supply ◽

Macroeconomic Policy ◽

Output Growth ◽

Long Run ◽

Short Run ◽

The Business Cycle

In conventional economics, two types of macroeconomic policy i.e. fiscal policy and monetary policy are used to streamline the business cycle. This paper has examined the cyclical behavior of these variables over the business cycle of Bangladesh. The objective of this examination is to show whether policies (fiscal policy and monetary policy) in Bangladesh are taken with a motive to stabilize the economy or only to promote economic growth. In other words, it has examined whether the policies in Bangladesh are procyclical or countercyclical or acyclical. Hodrick Prescott (HP) filter has been used to separate the cyclical component of considered variables. Both correlation and regression-based analysis have provided that in Bangladesh government expenditure and interest rates behave procyclically, but money supply behaves acyclically over the business cycle. Besides, this paper has tried to identify the long-term as well as the short-term relationship between real GDP and the macroeconomic policy variables with the help of the Johansen cointegration test, vector error correction model (VECM), and block exogeneity Wald test. Through these analyses, this study has found that fiscal policy has a significant impact on GDP growth both in the short-run and long-run. In the case of monetary policy, although the interest rate has an impact on real output both in the short-run and long-run, the money supply has neither a short-run nor long-run effect on output growth.

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