The effects of fiscal policy: evidence from a panel VAR for Europe and Oceania/East Asia.

This paper utilizes panel VAR analysis to investigate the effects of fiscal policy on unemployment and output. Using a system GMM approach, short run restrictions are applied in a panel VAR setting to identify structural shocks from fiscal policy as measured by the cyclically adjusted budget deficit. Results vary for panels including European countries and Oceania/East Asian countries. There is no effect from changes in fiscal policy in European countries and increases (decreases) in the cyclically adjusted budget deficit results in higher (lower) unemployment and lower (higher) output in Oceania/East Asia. Variance decompositions show the structural shocks to fiscal policy in Oceania/East Asia are important for understanding unemployment and output fluctuations. [ABSTRACT FROM AUTHOR]