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Macroeconomic effects of government spending shocks : New evidence using natural disaster relief in Korea

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  • Macroeconomic effects of government spending shocks
  • Yang, Weonho; Fidrmuc, Jan; Ghosh, Sugata
  • CESifo


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Title Macroeconomic effects of government spending shocks
Similar Titles
Sub Title

New evidence using natural disaster relief in Korea

Material Type Reports
Author(English)

Yang, Weonho; Fidrmuc, Jan; Ghosh, Sugata

Publisher

[Munich, Germany]:CESifo

Date 2012-09
Series Title; No CESifo working paper series / 3943
Pages 50
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Financial Policy
Territorial Development < Environment
Holding SSRN

Abstract

We investigate the macroeconomic effects of government spending shocks in Korea. We compare results obtained with two alternative approaches: the narrative approach and Structural Vector-Autoregressive model (SVAR). We propose a new methodology for identifying exogenous and unexpected fiscal shocks under the narrative approach: natural disasters and the associated government emergency spending in the wake of such disasters. Our results suggest that when government spending increases, the responses of GDP, private consumption, real wage and investment are all positive, which is in accord with the New Keynesian model. Similar results are obtained with both approaches. However, comparing the two approaches suggests that the timing is very important in identifying government spending shocks due to the anticipation effects of fiscal policy.