The economic effects of exogenous fiscal shocks in Spain: a SVAR approach

This paper estimates the effects of exogenous fiscal policy shocks in Spain in a VAR framework. Government expenditure expansionary shocks are found to have positive effects on output in the short-term at the cost of higher inflation and public deficits and lower output in the medium and long term. Tax increases are found to drag economic activity in the medium term while entailing an only temporary improvement of the public budget balance. The application of these results to the analysis of fiscal policy in Spain since the mid-nineties points to the conclusion that the consolidation process does not seem to have involved costs in terms of output growth. Moreover, the stance of fiscal policy has become more counter-cyclical in that period. JEL Classification: E62, H30Fiscal multipliers, Fiscal shocks, VAR

The effects of fiscal shocks on the exchange rate in Spain

En este trabajo analizamos los efectos de perturbaciones fiscales sobre el tipo de cambio efectivo de España durante el período 1981-2008 mediante un marco estándar de modelos VAR estructurales. Aquí se muestra que el gasto público conlleva respuestas positivas de la producción, conjuntamente con una apreciación real. Esta apreciación real se explica tanto por una persistente apreciación del tipo de cambio efectivo nominal, como por el aumento de los precios relativos. Nuestros resultados indican que la adopción de la moneda común no parece haber implicado cambios significativos respecto a la manera en que las perturbaciones fiscales afectan a la competitividad exterior a través de su efecto sobre los precios relativos. Por su parte, el saldo por cuenta corriente se deteriora en respuesta a incrementos de gasto público principalmente como consecuencia de la caída de las exportaciones provocada por la apreciación real. Por lo tanto, nuestros resultados son en gran medida compatibles no solo con el modelo Mundell-Fleming convencional y, en general, con una visión Keynesiana tradicional, sino también con un amplio abanico de modelos de ciclo real o de corte neo-Keynesiano con calibraciones estánda

The relationship between public and private saving in Spain : does Ricardian equivalence hold?

This paper aims to test the validity of the Ricardian proposition for the Spanish economy from three different approaches: a) by testing its theoretical implications on the stability of national saving and the relationship between fiscal and current account balances, b) by carrying a number of tests on different structural consumption equations and, c) by testing this hypothesis in consumption functions stemming from the Euler equations derived from a consumer’s maximization problem. Our results lean toward rejection of the Ricardian proposition, although some degree of substitution between public and private saving is detected. In terms of policy implications, these results would suggest that there is some room for fiscal policy to exert its countercyclical role in the case of Spain. However, the effectiveness of such a policy might be limited in a context of rising debt ratios that trigger sustainability concerns and make consumers increasingly Ricardia

Fiscal data revisions in Europe

Public deficit figures are subject to revisions, as most macroeconomic aggregates are. Nevertheless, in the case of Europe, the latter could be particularly worrisome given the role of fiscal data in the functioning of EU’s multilateral surveillance rules. Adherence to such rules is judged upon initial releases of data, in the framework of the so-called Excessive Deficit Procedure (EDP) Notifications. In addition, the lack of reliability of fiscal data may hinder the credibility of fiscal consolidation plans. In this paper we document the empirical properties of revisions to annual government deficit figures in Europe by exploiting the information contained in a pool of real-time vintages of data pertaining to fifteen EU countries over the period 1995-2008. We build up such real-time dataset from official publications. Our main findings are as follows: (i) preliminary deficit data releases are biased and non-efficient predictors of subsequent releases, with later vintages of data tending to show larger deficits on average; (ii) such systematic bias in deficit revisions is a general feature of the sample, and cannot solely be attributed to the behaviour of a small number of countries, even though the Greek case is clearly an outlier; (iii) Methodological improvements and clarifications stemming from Eurostat’s decisions that may lead to data revisions explain a significant share of the bias, providing some evidence of window dressing on the side of individual countries; (iv) expected real GDP growth, political cycles and the strength of fiscal rules also contribute to explain revision patterns; (v) nevertheless, if the systematic bias is excluded, revisions can be considered rational after two years. JEL Classification: E01, E21, E24, E31, E5, H600data revisions, fiscal statistics, news and noise, Rationality, real-time data

The joint dynamics of spot and forward exchange rates

Los tipos de cambio a plazo a uno y tres meses del marco aleman, franco frances, libra esterlina, yen japones y peseta respecto al dolar parecen estar cointegrados con los tipos de contado que se observan a la fecha de maduracion del contrato forward. Sin embargo, esta relacion de cointegracion no se observa cuando se analiza la relacion entre los tipos de cambio de contado y a plazo que se contratan en una misma fecha. Por otra parte, se encuentra que el comportamiento de los tipos de cambio a plazo es coherente con la hipotesis de impredictibilidad de los tipos de cambio de contado en los horizontes de uno y tres meses. Adicionalmente, se encuentra evidencia de existencia de primas de riesgo/plazo, pero, al ser de pequeña magnitud, los recientes resultados de ineficiencia en los mercados de divisas tienen solidez teorica, aunque poca relevancia a nivel empirico. (fc) (an) (mac

The economic effects of exogenous fiscal shocks in Spain : a SVAR approach

This paper estimates the effects of exogenous fiscal policy shocks in Spain in a VAR framework. Government expenditure expansionary shocks are found to have a positive impact on output in the short-term at the cost of higher inflation and public deficits and lower output in the medium and long term. Tax increases are found to have a negative impact on economic activity in the medium term while having only a temporary effect on the improvement of the public deficit. The application of these results to the analysis of fiscal policy in Spain since the mid-nineties point to the conclusion that the consolidation process does not seem to have involved costs in terms of output growth and the stance of fiscal policy has become more counter-cyclical. [resumen de autor

The effects of fiscal shocks on the exchange rate in the EMU and differences with the US

We analyse the impact of government spending shocks on the real effective exchange rate and net exports in the Euro Area within a standard structural VAR framework. We employ a new database that contains quarterly fiscal variables for the Euro Area as a whole. We show that higher government spending leads to real exchange rate appreciation and to a fall in net exports, jointly with lower primary budgetary surpluses, which turns out to be fully consistent with the “twin deficits” hypothesis. The different components of public spending, namely wage and non-wage consumption expenditure, overall public consumption expenditure and public investment, bring about real appreciations. Our results are therefore also consistent both with the home-bias hypothesis of public expenditure and with public investment contributing to generating relative productivity gains in the traded goods sector. Contrary to what is observed in the Euro Area, the real effective exchange rate depreciates in the US in response to higher government spending. This discrepancy can ultimately be explained by the reaction of nominal interest rate spreads and the uncovered interest parity condition. The dissimilar reaction of short-term nominal interest rate spreads is attributed to two factors, namely the role of the US dollar as a "safe haven" currency and the countercyclical behaviour of discretionary government spending in the USEn este trabajo se analiza el efecto de las variaciones de gasto público sobre el tipo de cambio efectivo real y sobre las exportaciones netas en el conjunto del área del euro con un VAR estructural estándar. Con este fin se utiliza una nueva base de datos fiscal trimestral para el área del euro. Nuestros resultados muestran que los aumentos de gasto público directo provocan una apreciación del tipo de cambio efectivo real y un deterioro del saldo por cuenta corriente, así como un empeoramiento del saldo primario de las Administraciones Públicas, resultado que está en consonancia con la hipótesis de «déficits gemelos». Los principales componentes del gasto público directo, (a saber, gastos de personal y consumo público en compras de bienes y servicios, el consumo público total y la inversión pública) generan apreciaciones reales. Así pues, nuestros resultados están también en consonancia con la hipótesis de existencia de un sesgo nacional en el gasto público y con la hipótesis de que la inversión pública da lugar a ganancias de productividad relativa en el sector de bienes comerciables. Contrariamente a lo que se observa en el área del euro, el tipo de cambio efectivo real en Estados Unidos se deprecia como respuesta a incrementos del gasto público. Tal discrepancia puede explicarse por la reacción del diferencial del tipo de interés con respecto al resto del mundo y la condición de la paridad no cubierta del tipo de interés. La diferente respuesta del diferencial de tipos de interés a corto plazo entre ambas áreas geográficas puede atribuirse a la conjunción de dos elementos de distinta naturaleza: el papel de moneda refugio del dólar y el comportamiento contracíclico del gasto público discrecional en Estados Unido

The composition of public spending in Europe and long-term growth

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