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Documents in EconStor mayIn the present work we investigate how the state of credit markets non-linearly affects the impact of fiscal policies. We estimate a Threshold Vector Autoregression (TVAR) model on U.S quarterly data for the period 1984-2010. We employ the spread between BAA-rated corporate bond yield and 10-year treasury constant maturity rate as a proxy for credit conditions. We find that the response of output to fiscal policy shocks are stronger and more persistent when the economy is in the "tight" credit regime. The fiscal multipliers are abundantly and persistently higher than one when firms face increasing financing costs, whereas they are feebler and often lower than one in the "normal" credit regime. On the normative side, our results suggest policy makers to carefully plan fiscal policy measures according to the state of credit markets.JEL Codes: J32, E32, E44, E62
In the present work we investigate how the state of credit markets affects the impact of fiscal policies. We estimate a Threshold Vector Autoregression (TVAR) model on U.S quarterly data for the period 1984-2010. We employ the spread between BAArated corporate bond yield and 10-year treasury constant maturity rate as a proxy for credit conditions. We find that the response of output to fiscal policy shocks is stronger and more persistent when the economy is in the "tight" credit regime. Fiscal multipliers are significantly different in the two regimes: they are abundantly and persistently higher than one when firms face increasing financing costs, whereas they are feebler and often lower than one in the "normal" credit regime. The results appear to be robust to different model specifications, fiscal foresight, alternative threshold variables, different measure of variables and sample periods.
In this work we investigate the interrelations among technology, output and employment in the different states of the U.S. economy (recessions vs. expansions). More precisely, we estimate different threshold vector autoregression (TVAR) models with TFP, hours, and GDP, employing the latter as threshold variable, and we assess the ensuing generalized impulse responses of GDP and hours as to TFP shocks. We find that positive productivity shocks, while spurring GDP growth, display a negative effect on hours worked at least on impact, independently of the state of the economy. In the 1957-2011 period, the effects of productivity shocks on employment are abundantly negative in downturns, but they are not significantly different from zero in good times. However, the impact of TFP shocks in different business cycle regimes depends on the chosen sample: after the mid eighties , productivity shocks increase hours during recessions. Finally, we express and test some conjectures that might have caused the changes in the responses in different time periods.JEL Codes: E32, O33, C32, E63, E20
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