Size Effects of Fiscal Policy and Business Confidence in the Euro Area
2. Materials and Methods
2.1. Empirical Specification
3.1. Shock in Government Spending
3.2. Shock in Business Confidence
3.3. Rolling Windows
4. Discussion and Conclusions
Conflicts of Interest
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Note that throughout the paper the use of “a shock on government consumption” or “a fiscal shock” are used interchangeably. It should be underlined that, contrary to what many papers suggest, the effects from a shock to government consumption should not be characterised as multipliers. This is because the actual implementation of a fiscal change requires that the change is held constant throughout the year and is zero afterwards, and thus is not suitable for a persistent shock.
The use of the sentiment index at a higher frequency could perhaps provide another interesting path for further understanding the effects of business confidence shocks on the economy. While this is a very intriguing question, we leave the use of higher frequency indices in a quarterly model under other specifications (such as MiDAS framework) for future research.
The principal component method employed for the estimation of factors implies that the cross-correlation between error terms in tends to zero as the number of series in (i.e., N) becomes large (Stock and Watson 2002).
The results presented in Section 3 remain qualitatively similar under different variable orderings.
Bootstrap results can be presented upon request.
In addition, we have also estimated a version of the model where government spending has been replaced with the change in government debt, with no material changes in the results.
|Panel a: GDP|
|Panel b: Tax revenue|
|Panel c: CPI|
|Panel d: Interest rate|
|Panel a: GDP|
|Panel b: Tax revenue|
|Panel c: CPI|
|Panel d: Interest rate|
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Michail, N.A.; Savva, C.S.; Koursaros, D. Size Effects of Fiscal Policy and Business Confidence in the Euro Area. Int. J. Financial Stud. 2017, 5, 26. https://doi.org/10.3390/ijfs5040026
Michail NA, Savva CS, Koursaros D. Size Effects of Fiscal Policy and Business Confidence in the Euro Area. International Journal of Financial Studies. 2017; 5(4):26. https://doi.org/10.3390/ijfs5040026Chicago/Turabian Style
Michail, Nektarios A., Christos S. Savva, and Demetris Koursaros. 2017. "Size Effects of Fiscal Policy and Business Confidence in the Euro Area" International Journal of Financial Studies 5, no. 4: 26. https://doi.org/10.3390/ijfs5040026