The fiscal policy and the dynamic of the economic cycle
ISSN: 0144-3585
Article publication date: 17 March 2020
Issue publication date: 6 April 2020
Abstract
Purpose
This study seeks to determine in some detail whether the state of the economic cycle matters in considering the effects of fiscal policy shocks on output.
Design/methodology/approach
This issue leads us to two primary objectives: to define the economic cycle measuring the gap with the unobserved component model with a smoother trend, which can be used efficiently to generate gap measures for use in real-time decision-making and avoids the criticisms of measures based on contentious structural models; and to look empirically at the fiscal policy stance over the phases of the cycle, bearing in mind the short time variation and smooth change between the cycle regimes.
Findings
This paper provides evidence that the fiscal policy rule seems to operate with varied coefficients depending on whether the transition variable is below or above the estimated threshold value.
Originality/value
The asymmetric response gives policymakers the impetus to reconsider the fiscal policy framework because of specific circumstances, such as shocks that can dramatically affect the nominal features of the business cycle. Put differently, stable and moderate fiscal policies would at least not contribute to cyclical fluctuations, and therefore would be better than what we have typically experienced. There would, therefore, seem to be a distinct need to address the properties of economic cycles under different fiscal policy rules.
Keywords
Acknowledgements
The author appreciates comments and suggestions from two anonymous referees.Funding: This study received NO funding.Ethical approval: This article does not contain any studies with human participants performed by any of the authors.Conflict of Interest: The author declares that he has no conflict of interest.
Citation
Alqaralleh, H. (2020), "The fiscal policy and the dynamic of the economic cycle", Journal of Economic Studies, Vol. 47 No. 2, pp. 231-241. https://doi.org/10.1108/JES-08-2018-0293
Publisher
:Emerald Publishing Limited
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