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Dynamic Asymmetry and Fiscal Policy

Zanetti Chini, Emilio (2020): Dynamic Asymmetry and Fiscal Policy.

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We introduce a new time series model for public consumption expenditure, tax revenues and real income that is capable to incorporate oscillations characterized by asymmetric phase and duration (or dynamic asymmetry). A specific-to-general econometric strategy is implemented in order to exclude the null hypotheses that these variable are linear or symmetric and, consequently, to ensure that these can be parsimoniously modelled. The U.S. postwar data suggest that the dynamic asymmetry -- either in cycle, either in trend -- is effectively a reasonable hypothesis for government expenditure and tax revenue, but also that a simple vector model unifying the (different) nonlinearities of each single series is unfeasible. Such an \textquotedblleft Occam-razor\textquotedblright \hspace{1pt} failure hinders econometricians in building impulse responses for calculation of fiscal multiplier and is here circumvented via empirical indexes.

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