Factor Models , Structural VAR , Impulse Response , Principal components , Fiscal Policy , Government Spending , Taxes
Abstract:
The present master thesis analyzes the dynamic effects of fiscal policy on
economic activity, by using a Factor Augmented Structural VAR approach. To
achieve identification, contemporaneous timing restrictions are used. The
results confirm the neoclassical view in some aspects, but the Keynesian view
in others. As an example, the impulse response of GDP following a spending
shock is negative, confirming the neoclassical view. However, the response of
hours worked is also negative, which contradicts the neoclassical view.
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