Fiscal Policy in Emerging Economies. A Bayesian Approach

Abstract

The interest in fiscal policy has gained momentum due to the recent financial crisis and to the fact that monetary policy has proved inefficient in fighting recession. This paper studies the impact of fiscal policy on aggregate demand in the Romanian and other three emerging economies from Central and Eastern Europe using Bayesian techniques. Therefore, a Bayesian VAR framework over 2000Q1-2014Q3 period is considered in order to analyse the responses of economic growth to fiscal policy shocks. The main findings suggest that the impact of government expenditure and revenue shocks on economic growth is however a small one.