The effect of government spending innovations on the Ethiopian economy

2019 ◽  
Vol 11 (1) ◽  
pp. 109-121
Author(s):  
Hayelom Yrgaw Gereziher ◽  
Naser Yenus Nuru
Keyword(s):  
Open Economy ◽  
Government Spending ◽  
Small Open Economy ◽  
Recursive Identification ◽  
Impulse Response Functions ◽  
Size Of Government ◽  
Content Type ◽  
Identification Scheme ◽  
Real Gdp ◽  
Capital Spending

Purpose The purpose of this paper is to estimate the size of government spending components’ multipliers for the Ethiopian economy over the sample period of 2001Q1 up to 2017Q4. Design/methodology/approach The effects of government spending are analyzed by applying short-run contemporaneous restrictions for the identification of shocks in an SVAR in order to estimate multipliers for the small open economy. Accordingly, recursive identification scheme is used in this study. Findings From the impulse response functions, the authors found that aggregate government spending is less effective in stimulating the economy for the study period as evidenced by almost zero multipliers. This can be due to many structural and conjunctural factors that tend to lower the multiplier effects. At a disaggregate level, real GDP responds negatively to capital spending while its effect on recurrent spending is positive and insignificant on impact. The variation to real GDP is best explained by the variation in capital spending as compared to recurrent spending. Originality/value Though almost none in number, little research has been conducted in Ethiopia related to the effect of government spending shock on output. But this research deviates from the previous study by introducing a new methodology which is SVAR with cholesky decomposition. The previous study, however, used Bayesian VAR. Besides to that, using cholesky identification scheme, government spending is decomposed in to recurrent and capital spending to see the effect of government spending components on output and government spending multipliers are also computed both at an aggregate and disaggregate level.

scholarly journals Monetary-fiscal policies interactions and optimal rules in Egypt

2019 ◽  
Vol 4 (2) ◽  
pp. 138-157
Author(s):  
Sherine Al-shawarby ◽  
Mai El Mossallamy
Keyword(s):  
Fiscal Policy ◽  
Interest Rate ◽  
General Equilibrium ◽  
Open Economy ◽  
Government Spending ◽  
Small Open Economy ◽  
Policy Instruments ◽  
New Keynesian ◽  
Content Type ◽  
Monetary And Fiscal Policy

Purpose This paper aims to estimate a New Keynesian small open economy dynamic stochastic general equilibrium (DSGE) model for Egypt using Bayesian techniques and data for the period FY2004/2005:Q1-FY2015/2016:Q4 to assess monetary and fiscal policy interactions and their impact on economic stabilization. Outcomes of monetary and fiscal authority commitment to policy instruments, interest rate, government spending and taxes, are evaluated using Taylor-type and optimal simple rules. Design/methodology/approach The study extends the stylized micro-founded small open economy New Keynesian DSGE model, proposed by Lubik and Schorfheide (2007), by explicitly introducing fiscal policy behavior into the model (Fragetta and Kirsanova, 2010 and Çebi, 2011). The model is calibrated using quarterly data for Egypt on key macroeconomic variables during FY2004/2005:Q1-FY2015/2016:Q4; and Bayesian methods are used in estimation. Findings The results show that monetary and fiscal policy instruments in Egypt contribute to economic stability through their effects on inflation, output and debt stock. The monetary policy Taylor rule estimates reveal that the Central Bank of Egypt (CBE) attaches significant importance to anti-inflationary policy and (to a lesser extent) to output targeting but responds weakly to nominal exchange rate variations. CBE decisions are significantly influenced by interest rate smoothing. Egyptian fiscal policy has an important role in output and government debt stabilization. Additionally, the fiscal authority chooses pro-cyclical government spending and counter-cyclical tax policies for output stabilization. Again, past values of the fiscal instruments are influential in the evolution of the future fiscal policy-making process. Originality/value A few studies have examined the interaction between monetary and fiscal policy in Egypt within a unified framework. The presented paper integrates the monetary and fiscal policy analysis within a unified dynamic general equilibrium open economy rational expectations framework. Without such a framework, it would not be easy to jointly analyze monetary and fiscal transmission mechanisms for output, inflation and debt. Also, it would be neither possible to contrast the outcome of monetary and fiscal authorities commitment to a simple Taylor instrument rule vis-à-vis optimal policy outcomes nor to assess the behavior of monetary and fiscal agents in macroeconomic stability in context of an active/passive policy decisions framework.

Monetary and fiscal policy effects in South African economy

2020 ◽  
Vol 11 (4) ◽  
pp. 625-638 ◽  
Author(s):  
Naser Yenus Nuru
Keyword(s):  
South Africa ◽  
Fiscal Policy ◽  
Open Economy ◽  
Empirical Studies ◽  
Small Open Economy ◽  
Empirical Literature ◽  
Impulse Response Functions ◽  
Content Type ◽  
Joint Effects ◽  
Monetary And Fiscal Policy

PurposeThe main purpose of this study is to see the macroeconomic effects of monetary and fiscal policy shocks in South Africa.Design/methodology/approachThe joint effects of monetary and fiscal policy are analyzed by applying short-run contemporaneous restrictions for the identification of shocks in an SVAR in order to derive impulse response functions. Hence, a general AB model of (Amisano and Giannini, 1997) identification scheme, which is not recursive, is employed in this study.FindingsThe author shows that monetary tightening leads to a fall in real economic activity and depreciates the exchange rate. And in regard to the fiscal policy, the author calculates an initial government spending multiplier of 0.20, which later peaks at 0.40. The tax multiplier is almost 0 on impact and statistically insignificant. However, the author finds evidence supporting the existence of accommodative stance between monetary policy and fiscal policy, which is important for economic and political decision-making.Originality/valueEmpirical studies that deal with the joint effects of monetary and fiscal policy for South Africa through the SVAR framework are quite limited. This paper, therefore, contributes to the empirical literature on the effects of monetary and fiscal policy in a small open economy like South Africa.

The effects of government spending shocks on real exchange rate in Ethiopia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hiluf Techane Gidey ◽  
Naser Yenus Nuru
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Government Spending ◽  
Small Open Economy ◽  
Government Investment ◽  
Government Consumption ◽  
Content Type ◽  
Vector Autoregressive ◽  
Spending Shocks

PurposeGovernment spending has inconclusive effect on real exchange rate. From the very beginning neoclassical economists argued that a rise in government spending brings depreciation in real exchange rate while neo-Keynesians claimed that government spending appreciates real exchange rate. Hence, the main purpose of this paper is to examine the effect of government spending shock and its components' shocks, namely government consumption and government investment on real exchange rate over the period 2001Q1–2016Q1 for Ethiopia.Design/methodology/approachTo examine the effects of government spending shocks on real exchange rate, Jordà's (2005) local projection method is employed in this study. The exogenous shocks, however, are identified recursively in a vector autoregressive model.FindingsThe impulse responses show that government spending shock leads to a statistically significant appreciation of real exchange rate in Ethiopia. This evidence supports the neo-Keynesian school of thought who predicts an appreciation of real exchange rate from a rise in government spending. While government investment shock depreciates real exchange rate on impact insignificantly, government consumption shock appreciates real exchange rate in this small open economy.Originality/valueThis research contributes to the scarce literature on the effect of fiscal policy shock on real exchange rate in small open economies like Ethiopia.

HABIT FORMATION AND GOVERNMENT SPENDING IN A SMALL OPEN ECONOMY

2003 ◽  
Vol 7 (3) ◽  
pp. 407-423 ◽  
Author(s):  
Cem Karayalçin
Keyword(s):  
Fiscal Policy ◽  
General Equilibrium ◽  
Current Account ◽  
Open Economy ◽  
Equilibrium Model ◽  
Government Spending ◽  
Time Preference ◽  
Small Open Economy ◽  
Long Run ◽  
Fiscal Shocks

The paper studies the effects of an expansionary fiscal policy in a general equilibrium model of a small open economy. Households are assumed to possess habit-forming, endogenous rates of time preference. In response to fiscal shocks, the model generates cyclical endogenous persistence and procyclical time paths for consumption, employment, and investment, as well as a countercyclical path for the current account. Furthermore, fiscal shocks are shown to have positive long-run effects on output and negative long-run effects on consumption.

scholarly journals The Vietnamese business cycle in an estimated small open economy New Keynesian DSGE model

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Phuong V. Nguyen
Keyword(s):  
Business Cycle ◽  
Open Economy ◽  
Small Open Economy ◽  
Research Paper ◽  
New Keynesian ◽  
Dsge Model ◽  
Content Type ◽  
Business Cycle Fluctuations ◽  
Dynamic Stochastic ◽  
The Business Cycle

PurposeThe primary purpose of this paper is to investigate the sources of the business cycle fluctuations in Vietnam. To this end, the author develops a small open economy New Keynesian dynamic stochastic general equilibrium (SOE-NK-DSGE) model. Accordingly, this model includes various features, such as habit consumption, staggered price, price indexation, incomplete exchange-rate pass-through (ERPT), the failures of the law of one price (LOOP) and the uncovered interest rate parity. It is then estimated by using the Bayesian technique and Vietnamese data 1999Q1–2017Q1. Based on the estimated model, this paper analyzes the sources of the business cycle fluctuations in this emerging economy. Indeed, this research paper is the first attempt at developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.Design/methodology/approachA SOE-NK-DSGE model—Bayesian estimation.FindingsThis paper analyzes the sources of the business cycle fluctuations in Vietnam.Originality/valueThis research paper is the first attempt at developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.

Sign in / Sign up

Export Citation Format

Share Document