ON THE DEBATE OVER THE PERFORMANCE OF FISCAL SHOCKS AND THE GOVERNMENT SPENDING MULTIPLIERS: THE EXPERIENCE OF SELECTED LATIN AMERICAN EMERGING ECONOMIES

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Seminario; XV ARNOLSHAIN SEMINAR; 2017

XV ARNOLSHAIN SEMINAR

The interest in the effects of government spending shocks and the size of fiscal multipliers, increased in response to the consequences of the global financial crisis and the limit posed by zero bound interest rates to the use of monetary policies. In this connection, this paper sought to assess Latin American countries´ response of macroeconomic variables to non systematic changes of government spending, given scenarios of financial crises, fixed exchange rates and fragile public finances. A two-step approach was adopted for the econometric analysis, in which the systematic change in government spending was first estimated for each country and the respective equations´ residuals included later, together with the dummies, in the second stage´s panel in order to quantify the dynamic impact of fiscal shocks upon gross domestic product, private consumption and net exports.Although the panel´s estimations threw clear evidences of variables´ response to dummies included, and highlighted also the importance of economic scenarios, their limited response to spending innovations stressed the short lived reach of fiscal shocks; finally, the low values of ´proxy´ multipliers not only fell in line with main estimations found in the recent literature but also complemented the idea of short-lived government spending shocks.