Macroeconomic impacts of fiscal shocks on the Moroccan economy: a disaggregated SVAR analysis

PurposeThe present paper aims to evaluate the structural impact of exogenously induced fiscal shocks on the Moroccan economy. This entails an analysis of the effect on the GDP of COVID-19-induced fiscal shocks manifesting in terms of budgetary revenues and expenditures. A key aspect of this analysis addresses the size of the tax and fiscal multipliers.Design/methodology/approachThe study examines the structural relationship between five variables during the period between Q1 2009 and Q2 2020 using an SVAR approach that allows for a dynamic interaction between ordinary expenditures and revenues on a quarterly basis.FindingsPositive structural shocks on public spending are likely to negatively impact economic growth. Negative economic growth, in turn, will damage price levels and interest rates, mainly over the long term. However, public-revenue-multiplier-associated shocks exceed these price- and interest-rate multiplier-associated shocks. Indeed, a structural shock to ordinary revenues can have a positive but insignificant impact on the GDP stemming from the ensuing decrease in the government budget deficit that proceeds from the increase in government revenues.Originality/valueThis is one of the first studies in the Moroccan context to assess the impact of the current worldwide pandemic on public finances. In addition, this study highlights the importance of boosting economic recovery through public spending.

Financial Sector’s Role in Transmission of Monetary and Fiscal Shocks in Russian Economy: Estimation Under Different Assumptions About Production Sector

The financial sector plays a crucial role in the economy, not only being a simple intermediary between creditors and borrowers, but also having a significant impact on the economy’s development and its various characteristics. For this reason, accounting for financial sector peculiarities is critical when developing policy-oriented general equilibrium models for practical use. This drives the interest of many researchers in development of approaches to describing the financial sector and financial frictions in DSGE models. In financial frictions models one can describe the production side of the economy in a simplistic way. However, it could be important to model the production sector in more detail. For instance, separating tradable and non-tradable sectors of the economy could be of great significance, especially for developing economies which depend on foreign trade a lot. In this paper we analyze the role of the financial sector and how important it is for transmission of monetary and fiscal shocks under different assumptions about the production sector. Namely, we compare two-sector economy with tradable and non-tradable sectors with a simplistic model which assumes that the economy produces only tradable goods. According to the results, financial frictions impact tradable and nontradable sectors asymmetrically. In the two-sector model the effect of financial frictions is quantitatively smaller than in the one-sector economy. Therefore, using the latter simplifying assumption could lead to overestimating the role of financial frictions in the transmission of monetary and fiscal shocks. In addition, the paper provides estimates of how changes in monetary and fiscal policy instruments impact the Russian economy given the existence of financial frictions.

Do fiscal shocks explain bond yield in high- and low-debt economies?

PurposeThe purpose of this study is to investigate how the uncertainty associated with fiscal policy, i.e. government expenditure and tax revenues, can affect the interest rates in a group of eleven countries, comprising high- and low-debt countries: Cyprus, Greece, Ireland, Italy, Portugal, Spain, Australia, Canada, Denmark, New Zealand and Norway.Design/methodology/approachThe empirical analysis makes use of the structural VAR (SVAR) methodological approach, which allows us to decompose the effects of the contribution of shocks generated by each variable, as well as their transmission effects.FindingsThe empirical findings suggest that both demand and supply factors influence interest rates across their frequency spectrum. For the majority of high-debt countries, the course of the yields on their government bonds is driven mainly by supply side factors and not demand (i.e. government expenses or taxes) factors.Research limitations/implicationsGiven that the economies of certain (mostly small) countries are affected by economic conditions in large countries, especially when they have large capital flows or trade much with these countries, the future empirical analysis could also consider both domestic and international (control) macroeconomic variables to explain the course of interest rates due to fiscal changes.Originality/valueThe previous literature does not capture the financial crisis period, nor does it take a comparative approach – high debt versus low debt – to investigate the effect of fiscal shocks on interest rates. Thus, we aim to respond to the following questions: (1) How do fiscal shocks affect interest rates in the sample of selected countries? (2) How different is the impact of fiscal shocks on interest rates in high- and low-debt countries?

Does Austerity Pay Off?

We investigate empirically how fiscal shocks—unanticipated and exogenous changes of government consumption growth—affect the sovereign default premium. For this purpose, we assemble a new data set for 38 emerging and developed economies. It contains approximately 3,000 observations for the sovereign default premium and three alternative measures of fiscal shocks. We condition our estimates on whether shocks are positive or negative and initial conditions in terms of fiscal stress. An increase of government consumption barely affects the default premium. A reduction raises the premium if fiscal stress is severe but decreases it if initial conditions are benign.