Publication details

The Effects of Fiscal Policy on Business Cycle: Evidence from SVAR Model with Debt Constraints


BAĎO Peter REICHEL Vlastimil HLOUŠEK Miroslav

Year of publication 2015
Type Article in Proceedings
Conference Proceedings of 18th International Conference Enterprise and Competitive Environment
MU Faculty or unit

Faculty of Economics and Administration

Web Conference proceedings
Field Economy
Keywords structural vector autoregression; fiscal and monetary policy; debt
Description This paper is focused on macroeconomic effects of fiscal and monetary policy in the Czech economy. We are using a Structural Vector Autoregression model (SVAR) for small open economy. The model includes six variables, specifically: government spending, government revenues, inflation, GDP, exchange and interest rates. Furthermore, the model is enriched with debt constraints over time. We investigate the dynamic responses of output, inflation and the interest rate to changes in government spending and revenues and analyze the contribution of shocks to business cycle in the Czech economy for the period 1999:Q1 – 2014:Q1. The results for the Czech economy are similar to the results for other small open economies described in current literature. Fiscal policy during the estimated period is analyzed through historical shock decomposition. Our findings are that GDP decreases in reaction to fiscal shock and monetary variables show negligible reaction to the same shock. We identified the periods of business cycle, where the effects of fiscal policy were procyclical and countercyclical.
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