TY  - JOUR
AU  - Fernández-Villaverde,Jesús
AU  - Guerrón-Quintana,Pablo A.
AU  - Kuester,Keith
AU  - Rubio-Ramírez,Juan
TI  - Fiscal Volatility Shocks and Economic Activity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17317
PY  - 2011
Y2  - August 2011
UR  - http://www.nber.org/papers/w17317
L1  - http://www.nber.org/papers/w17317.pdf
N1  - Author contact info:
Jesus Fernandez-Villaverde
University of Pennsylvania
160 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
Tel: 267/307-1068
E-Mail: jesusfv@econ.upenn.edu

Pablo A. Guerrón-Quintana
Federal Reserve Bank of Philadelphia
Tel: 9195132869
E-Mail: pablo.guerron@phil.frb.org

Keith Kuester
Federal Reserve Bank of Philadelphia
E-Mail: keith.kuester@uni-bonn.de

Juan Rubio-Ramírez
Duke University
P.O. Box 90097
Durham, NC 27708
Tel: 9196601865
E-Mail: juan.rubio-ramirez@duke.edu
AB  - We study the effects of changes in uncertainty about future fiscal policy on aggregate economic activity. Fiscal deficits and public debt have risen sharply in the wake of the financial crisis. While these developments make fiscal consolidation inevitable, there is considerable uncertainty about the policy mix and timing of such budgetary adjustment. To evaluate the consequences of this increased uncertainty, we first estimate tax and spending processes for the U.S. that allow for time-varying volatility. We then feed these processes into an otherwise standard New Keynesian business cycle model calibrated to the U.S. economy. We find that fiscal volatility shocks have an adverse effect on economic activity that is comparable to the effects of a 25-basis-point innovation in the federal funds rate.
ER  -