Fiscal Policy, Fo esigh and he T ade Balance in he U.S.
Luca Gambe i∗
Uni e si a Au onoma de Ba celona
Sep embe 1, 2010
Abs ac
This pape in es iga es he e ec s o iscal policy on he ade balance using a s uc u al ac o
model. A iscal policy shock wo sens he ade balance and p oduces an app ecia ion o he
domes ic cu ency bu he e ec s a e quan i a i ely small. The indings ma ch he heo e ical
p edic ions o he s anda d Mundell-Fleming model, al hough iscal policy should no be con-
side ed one o he main causes o he la ge US ex e nal de ici . My conclusions di e om hose
eached using VAR models since he iscal shock, possibly due o iscal o esigh , is non unda-
men al o he a iables ypically used in open economy VARs.
JEL classi ica ion: C32, E32, E62.
Keywo ds: s uc u al ac o model, iscal policy, win de ici s, ade de ici , cu en accoun ,
Mundell-Fleming.
∗I am g a e ul o Ma io Fo ni o help ul discussions. The inancial suppo om he Spanish
Minis y o Science and Inno a ion h ough g an ECO2009-09847 and he Ba celona G adua e School
Resea ch Ne wo k is g a e ully acknowledged. Con ac : O ice B3.174, Depa amen d’Economia i
His o ia Economica, Edi ici B, Uni e si a Au onoma de Ba celona, Bella e a 08193, Ba celona, Spain.
Tel (+34) 935811289; e-mail: luca.gamb[email p o ec ed]
1
1 In oduc ion
Since he mid 1980s, he U.S. economy has been cha ac e ized by a la ge and g owing
ade de ici . A ound he mid 1980s he de ici was abou 3% o GDP while since 2000
has been on a e age abou 5% o GDP. The phenomenon, gi en i s magni ude, has
a ac ed a g ea deal o a en ion de o ed o assessing he possible causes. Expansion-
a y iscal policy is in he lis . Acco ding o he s anda d ex book Mundell-Fleming
model, a iscal policy expansion wo sens he ade balance h ough he app ecia ion
o he domes ic cu ency ollowing he in low o o eign capi al a ac ed by a highe
in e es a e.1
Qui e su p isingly howe e , li le e idence abou he e ec s o iscal policy shocks
on he ade de ici and he exchange a es is a ailable.2Mo oe e exis ing empi ical
analyses based on VAR models yield con as ing esul s, none o which suppo ing he
p edic ions o he s anda d Mundell-Fleming model. Kim and Roubini (2008) inds
ha an expansiona y iscal shock dep ecia es he eal exchange a e and imp o es he
cu en accoun balance. The inding can be a ionalized by he p esence o c owding
ou o p i a e in es men and Rica dian mo emen s in p i a e sa ings.3A simila
esul is ob ained in Co se i and Mulle (2006). Monacelli and Pe o i (2007), on he
con a y, inds ha an inc ease in go e nmen spending dep ecia es he eal exchange
a e and wo sens he ade balance. This e idence has spa ked an impo an esea ch
e o o be e unde s and he mechanisms ha p opaga e iscal policy ac ions.
S udying he e ec s o iscal shocks using VAR echniques can be p oblema ic
hough. A ew ecen wo ks ha e con incingly a gued ha , because o he exis ence o
legisla i e and implemen a ion lags, p i a e agen s ecei e signals abou u u e changes
in axes and go e nmen spending be o e hese changes ake ac ually place, he phe-
nomenon called “ iscal o esigh ” (see e.g. Yang, 2007, Leepe , Walke and Yang, 2008,
Me ens and Ra n, 2009).
Leepe , Walke and Yang (2008) (LWY hence o h) shows heo e ically ha , un-
de iscal o esigh , s anda d VAR echniques a e likely o ail in co ec ly es ima -
ing he iscal policy shock since a p oblem o non- undamen alness eme ges. Non-
undamen alness ypically a ises when agen s ha e a la ge in o ma ion se han he
econome ician4, a si ua ion ha can occu when a limi ed numbe o a iables a e con-
1A pa ial lis o models whe e a iscal expansion may gene a e a wo sening o he ade balance
includes Do nbusch (1976), Bax e , (1995) and Kollmann, (1998), E ceg, Gus and Gue ie i (2005).
2On he con a y, a lo o e idence is a ailable on he e ec s o go e nmen spending shocks on
domes ic a iables, see e.g. Blancha d and Pe o i (2002) and Ramey and Shapi o (1988).
3An imp o emen o he cu en accoun balance a e a pe manen inc ease in go e nmen spending
can be ound in he model o Obs eld and Rogo (1995).
4see Hansen and Sa gen (1980).
2
side ed like in VAR models5. Bu in p esence o iscal o esigh non- undamen alness
becomes a e y likely scena io. The in ui ion is ha iscal a iables like axes o go -
e nmen spending, ypically used o iden i y iscal policy shocks, a e a ec ed only wi h
a delay by iscal policy ac ions so ha hei cu en and pas alues do no con ey
enough in o ma ion abou he cu en shock.
Fo ni and Gambe i (2010) p o ides e idence ha go e nmen spending shocks
a e ac ually non- undamen al o he a iables usually conside ed in s anda d closed-
economy speci ica ions. The inding con i ms he esul ob ained in Ramey (2009) ha
he iscal policy shock es ima ed wi h a VAR as in Pe o i (2007) is G ange -caused
by he o ecas o go e nmen spending om he Su ey o P o essional Fo ecas e s.
Al hough he speci ica ions conside ed by he au ho s do no include open economy
a iables, he esul s cas some doub on he eliabili y o he indings ob ained wi h
s uc u al VARs and mo i a e he analysis conduc ed he e.
In his pape I depa om he VAR app oach and s udy he e ec s o iscal shocks
on he ade balance using a la ge s uc u al ac o model. The main mo i a ion is
ha , as a gued in Fo ni, Giannone, Lippi and Reichlin (2009), in his class o models
s uc u al shocks a e always undamen al. The ac o model uses a la ge numbe o
a iables d i en by a much smalle numbe o economic shocks. Rich in o ma ion helps
pe se in mi iga ing he p oblem o non- undamen alness since educes he gap be ween
he in o ma ion se s o economic agen s and he econome ician. Bu mos impo an ly,
ha ing less shocks han a iables implies ha mac oeconomic dynamics a e ep esen ed
by a ec angula , “ all” MA sys em whe e, as I shall show, shocks a e undamen al.
The model is es ima ed using US qua e ly da a o 115 US mac oeconomic ime
se ies. The shock is iden i ied using sign es ic ions. An expansiona y iscal shock is
de ined as a shock ha ing (i) a posi i e e ec on ou pu (GDP and indus ial p oduc-
ion), p ices (GDP de la o and CPI) and he sho e m in e es a e ( he p ime a e)
a an ho izon o h ee qua e s, and (ii) a posi i e e ec on go e nmen p ima y de ici
a ho izons h ee o eigh qua e s.
The main indings a e he ollowing. The iscal shock is non undamen al o he
a iables ypically used in open economy iscal VAR models, so ha i s impulse esponse
unc ions canno be consis en ly es ima ed by means o a VAR. A iscal policy shock
wo sens he ade balance and p oduces an app ecia ion o he domes ic cu ency bu
he e ec s a e quan i a i ely small, he shock accoun ing o abou 14% o he ola ili y
o he ade and cu en accoun balance and he exchange a e. The esul s b oadly
ma ch he heo e ical p edic ions o he s anda d Mundell-Fleming model, al hough
iscal policy canno be conside ed he main cause o he la ge US ex e nal de ici .
The emainde o he pape is o ganized as ollows. Sec ion 2 p esen s he ac o
5see Lippi and Reichilin (1994).
3
model; Sec ion 3 discusses he model speci ica ion and p esen s he main esul s; Sec ion
4 concludes.
2 The s uc u al ac o model
In he p esen sec ion I p o ide a p esen a ion o he model and es ima ion p ocedu e.
Fo addi ional de ails see Fo ni, Giannone, Lippi and Reichlin (2009), FGLR om now
on.6
2.1 Rep esen a ion
Each mac oeconomic a iable is he sum o wo mu ually o hogonal unobse able
componen s, he common componen χi and he idiosync a ic componen ξi :
xi =χi +ξi .(1)
The idiosync a ic componen s a e poo ly co ela ed in he c oss-sec ional dimension
(see FGLR, Assump ion 5 o a p ecise s a emen ). They a ise om shocks o sou ces
o a ia ion which conside ably a ec only a single a iable o a small g oup o a i-
ables. Fo a iables ela ed o pa icula sec o s, like indus ial p oduc ion indexes o
p oduc ion p ices, he idiosync a ic componen may e lec sec o speci ic a ia ions;
o s ic ly mac oeconomic a iables, like GDP, in es men o consump ion, he id-
iosync a ic componen mus be in e p e ed essen ially as a measu emen e o .7
The common componen s a e esponsible o he main bulk o he co-mo emen s be-
ween mac oeconomic a iables, being linea combina ions o a ela i ely small numbe
o ac o s 1 , 2 ,· · · , , no depending on i:
χi =a1i 1 +a2i 2 +· · · +a i =ai .(2)
The dynamic ela ions be ween he mac oeconomic a iables a ise om he ac
ha he ec o ollows he ela ion
=N(L)u ,(3)
6FGLR is a special case o he gene alized dynamic ac o model p oposed by Fo ni, e al. (2000,
2004, 2005) and Fo ni and Lippi (2001, 2010). This model di e s om he adi ional dynamic ac o
model o Sa gen and Sims (1977) and Geweke (1977) in ha he numbe o c oss-sec ional a iables
is in ini e and he idiosync a ic componen s a e allowed o be mu ually co ela ed o some ex en ,
along he lines o Chambe lain (1983), Chambe lain and Ro hschild (1983) and Conno and Ko ajczyk
(1988). Closely ela ed models ha e been s udied by Fo ni and Reichlin (1998), S ock and Wa son
(2002a, 2002b, 2005), Bai and Ng (2002, 2007), Bai (2003) and Be nanke e al. (2005).
7Al ug, (1989), Sa gen , (1989), and I eland (2004) show ha he model can be in e p e ed as he
linea solu ion o a DSGE model wi h measu emen e o .
4
whe e N(L) is a ×qma ix o a ional unc ions in he lag ope a o Land u =
(u1 u2 · · · uq )0is a q-dimensional ec o o o hono mal whi e noises, wi h q < .
Such whi e noises a e he s uc u al mac oeconomic shocks.8
Since N(L) is all, as i will be clea om he discussion in subsec ion 2.4 , he ank
o N(z) is q o any z, which implies undamen alness. This ensu es ha has he
ini e o de VAR ep esen a ion (Ande son and Deis le , 2008)
D(L) = =Ru ,(4)
whe e D(L) is a × ma ix o polynomials such ha D(L)−1R=N(L) and R=N(0).
F om equa ions (??) o (??) i is seen ha he model can be w i en in he dynamic
o m
xi =bi(L)u +ξi ,(5)
whe e
bi(L) = aiN(L) = aiD(L)−1R. (6)
The en ies o he q-dimensional ec o bi(L) a e he impulse esponse unc ions.
Obse e ha , unde app op ia e egula i y condi ions on he ac o loadings ai,9
he linea space spanned by he χ’s includes he ac o s, so ha u is undamen al
o he χ’s. Mo eo e , since he idiosync a ic componen s a e poo ly co ela ed ac oss
sec ions and he x’s a e in ini e in numbe , by aking app op ia e a e ages o he x’s
he idiosync a ic componen s can be elimina ed and he ac o wi hou e o can be
ob ained. This can be es a ed by saying ha u is undamen al o he x’s.
2.2 Iden i ica ion
Rep esen a ion (??) is no unique, since he impulse esponse unc ions and he ela ed
p imi i e shocks a e no iden i ied. In pa icula , i His any o hogonal q×qma ix,
hen
χi =ci(L)
whe e ci(L) = bi(L)H0and =Hu . Howe e , assuming mu ually o hogonal s uc-
u al shocks, pos -mul iplica ion by H0is he only admissible ans o ma ion, i.e. he
impulse esponse unc ions a e unique up o o hogonal ans o ma ions, jus like in
s uc u al VAR models (FGLR, P oposi ion 2).
8In he la ge dynamic ac o model li e a u e hey a e some imes called he “common” o “p imi i e”
shocks o “dynamic ac o s” (whe eas he en ies o a e he “s a ic ac o s”). Equa ions (??) o (??)
need u he quali ica ion o ensu e ha all o he ac o s a e loaded, so o speak, by enough a iables
wi h la ge enough loadings (see FGLR, Assump ion 4); his “pe asi eness” condi ion is necessa y o
ha e uniqueness o he common and he idiosync a ic componen s, as well as he numbe o s a ic
ac o s and dynamic ac o s q.
9see FGLR, Assump ion 4.
5

As a consequence, s uc u al analysis in ac o models can be ca ied on along
lines e y simila o hose o s anda d SVAR analysis. Speci ically q(q−1)/2 e-
s ic ions ha e o be imposed on he ma ix o impulse esponse unc ions Bn(L) =
(b1(L)0b2(L)0· · · bn(L)0)0, whe e nis he numbe o a iables in he da ase , o pin down
all he elemen s o H.
I he esea che is in e es ed in iden i ying jus a single shock (pa ial iden i ica-
ion), he a ge is o de e mine he en ies o a single column o he ma ix H, say H1,
which is enough o ob ain he i s column o Bn(L), say Bn1(L).
In he p esen pape he shock and he impulse esponse unc ions a e no uniquely
iden i ied; a he , ollowing Uhlig (2005), a dis ibu ion o shocks and ela ed impulse
esponse unc ions is iden i ied by imposing a se o sign es ic ions on he impulse
esponse unc ions hemsel es.10 The i s column H1o he ma ix His a poin on he
uni sphe e Sq−1. Gi en he non-s uc u al ep esen a ion Cn(L) , he sign es ic ions
ha a e imposed on Bn1(L) de ine an admissible egion Θ on he uni sphe e, such ha
o H1∈ΘBn1(L) = Cn(L)H1sa is ies such inequali ies. Following Uhlig (2005), a
uni o m a p io i p obabili y densi y in he egion Θ is assumed. This in u n implies a
densi y and he associa ed con idence bounds o each coe icien o he impulse esponse
unc ions.
2.3 Es ima ion
Es ima ion p oceeds h ough he ollowing s eps.
1. S a ing wi h an es ima e ˆ , he s a ic ac o s a e es ima ed by means o he i s
ˆ p incipal componen s o he a iables in he da ase , and he ac o loadings by
means o he associa ed eigen ec o s. P ecisely, le ˆ
Γxbe he sample a iance-
co a iance ma ix o he da a: he es ima ed loading ma ix ˆ
An= (ˆa0
1ˆa0
2· · · ˆa0
n)0
is he n× ma ix ha ing on he columns he no malized eigen ec o s co e-
sponding o he i s la ges ˆ eigen alues o ˆ
Γx, and he es ima ed ac o s a e
ˆ
=ˆ
A0
n(x1 x2 · · · xn )0.11
2. ˆ
D(L) and ˆ a e ob ained by unning a VAR(ˆp) wi h ˆ
whe e he numbe o lags
ˆpis chosen acco ding o some c i e ion.
3. Le ˆ
Γbe he sample a iance-co a iance ma ix o ˆ . Ha ing an es ima e ˆqo
he numbe o dynamic ac o s, an es ima e o a non-s uc u al ep esen a ion o
he common componen s is ob ained by using he spec al decomposi ion o ˆ
Γ.
P ecisely, le ˆµ
j,j= 1,...,ˆq, be he j- h eigen alue o ˆ
Γ, in dec easing o de ,
10The p ecise se o es ic ions imposed is discussed below.
11The ac o s a e iden i ied only up o linea ans o ma ions. Wha is es ima ed is a basis o he
ac o space.
6
ˆ
M he q×qdiagonal ma ix wi h qˆµ
jas i s (j, j) en y, and ˆ
K he ×qma ix
wi h he co esponding no malized eigen ec o s on he columns. The es ima ed
ma ix o non-s uc u al impulse esponse unc ions is
ˆ
Cn(L) = ˆ
Anˆ
D(L)−1ˆ
Kˆ
M.(7)
To accoun o es ima ion unce ain y, he ollowing non-o e lapping block boo -
s ap echnique is adop ed. Le X= [xi ] be he T×nma ix o da a. Such ma ix is
pa i ioned in o Ssub-ma ices Xs(blocks), s= 1, . . . , S, o dimension τ×n,τbeing
he in ege pa o T/S.12 An in ege hsbe ween 1 and Sis d awn andomly wi h
ein oduc ion S imes o ob ain he sequence h1, . . . , hS. A new a i icial sample o
dimension τS ×nis hen gene a ed as X∗=hX0
h1X0
h2· · · X0
hSi0
and he co espond-
ing impulse esponse unc ions, ˆ
Cn(L), a e es ima ed. A ec o H1is gene a ed N
imes by d awing i s qen ies om a s anda d no mal dis ibu ion and no malized
by i s Euclidean no m. Fo each o he N ec o s he impulse esponse unc ions
ˆ
Bn1(L) = ˆ
Cn(L)H1a e compu ed. Those sa is ying he sign es ic ions a e kep .13
A se o non-s uc u al impulse esponse unc ions is ob ained by epea ing d awing,
es ima ion and iden i ica ion.
2.4 Discussion
He e I discuss in de ail why in he ac o model he shocks a e undamen al. Le us
conside he s a is ical MA ep esen a ion
χ =Bn(L)u ,(8)
whe e χ = (χ1 · · · χn )0is an n- ec o o weakly s a iona y a iables, Bn(L) is a (n×q)
ma ix o a ional unc ions in he lag ope a o L, wi h n≥q, and u = (u1 · · · uq )0is
aq-dimensional whi e-noise no malized o ha e iden i y a iance-co a iance ma ix.
Unde wha condi ions he shocks u a e undamen al o χ , i.e. p esen and pas
alues o χ a e su icien o eco e u ? Rep esen a ion (??) is undamen al i and only
i he ank o Bn(z) is q o all zsuch ha |z|<1 (see e.g. Rozano , 1967, Ch. 1,
Sec ion 10, and Ch. 2, p. 76).
In he pa icula case n=q, such condi ion educes o he equi emen ha he
de e minan o Bn(z) does no anish wi hin he uni ci cle in he complex plane. I
his condi ion holds, hen he shock u can be ound using a VAR o χ and he ela ed
s anda d iden i ica ion echniques. In gene al, howe e , he e is no gua an ee ha he q
12No e ha τhas o be la ge enough o e ain ele an lagged au o- and c oss-co a iances.
13A each s ep o he boo s ap p ocedu e we collec a mos 10 impulse esponse unc ions in o de
o a oid ha a single boo s ap p o ides a disp opo iona ely la ge numbe o unc ions.
7
a iables a e su icien o eco e he shocks (see Fe n´andez-Villa e de, Rubio-Rami ez,
Sa gen and Wa son, 2007). In pa icula , Leepe , Walke and Yang (2008) shows ha
unde iscal o esigh he condi ion is iola ed and he shocks a e non- undamen al.
Now conside he case n > q. No ice ha in his case (??) coincides wi h he
ec o o he common componen s o he ac o model. In his si ua ion, Bn(z) is a
“ all”, ec angula ma ix and i s ank is less han q o some z, i.e. he shock is non-
undamen al, only i all o he (q×q) sub-ma ices o Bn(z) a e singula . Clea ly his
is a e y special case since i equi es n
q!−1 equali ies o be sa is ied. The e o e, in
gene al, when n > q B(z) has ank q o all zand he shocks can be assumed o be
undamen al. In ui i ely undamen alness is ensu ed i he gene a ing p ocesses o χj ,
j=q+ 1, . . . , n, ha e impulse esponse unc ions which a e su icien ly he e ogeneous,
wi h espec o he i s q, o p e en he ank educ ion.
Finally le us s ess again ha , as al eady a gued in Sec ion 2, he q-dimensional
squa e subma ices o N(z) = D(z)−1Rappea ing in equa ion (??) can be singula o
alues o zwi hin he uni ci cle, wi hou hu ing consis ency o es ima ion. Simila ly,
conside ing a q-dimensional ec o o in ege s I, such ha Ii≤n,i= 1, . . . , q,u
can be non- undamen al o he sub ec o (χI1 · · · χIq )0=BI(L)u =AIN(L)u and
de BI(z) can anish wi hin he uni ci cle. This is in e es ing because he smalles oo
o some selec ed squa e subsys ems can be es ima ed and i can be e i ied whe he
he co esponding impulse esponse unc ions a e indeed non- undamen al, implying a
p oblem o VAR es ima ion.
3 Empi ics
We now discuss he model speci ica ion and p esen he main esul s.
3.1 Da a and pa ame e speci ica ion
The da a se con ains 115 qua e ly mac oeconomic ime se ies spanning om 1973:I o
2007:IV. I includes iscal policy a iables, GDP and componen s, indus ial p oduc ion
indexes, labo ma ke a iables, s ock ma ke a iables, su eys, leading indica o s,
p ice indexes and de la o s, money and c edi agg ega es, long and sho e m in e es
a es, and se e al open economy a iables like he ade and cu en accoun balance,
he eal and nominal exchange a e and he e ms o ade. The da a a e ans o med
o each s a iona i y, as equi ed by he model. The ull lis o a iables along wi h he
co esponding ans o ma ions is epo ed in he Appendix. All se ies a e aken om
FRED Da abase, Fede al Rese e Bank o S . Louis.
Fi s o all he numbe o s a ic ac o , ˆ , he numbe o shocks, ˆq, and he numbe
8
o lags, ˆpha e o be speci ied. To de e mine ˆ I ely on he ICp2c i e ion o Bai and
Ng (2002), which gi es ˆ = 10. I se ˆp= 3.
The numbe o shocks is de e mined by a ew consis en in o ma ion c i e ia. He e
I use h ee g oups o c i e ia, p oposed by Amengual and Wa son (2007), Bai and
Ng (2007) and Hallin and Liska (2007). The c i e ion ˆ
BNICP (ˆyA) by Amengual and
Wa son gi es 5 p imi i e ac o s in he ICp1 e sion and 3 p imi i e ac o s in he ICp2
e sion (wi h ˆ = 10 and p= 3). The ou c i e ia o Bai and Ng (2007), namely q1, q2, q3
and q4, gi e 6, 5, 5 and 3 shocks espec i ely (wi h ˆ = 10 and p= 3).14 Finally, he
log c i e ion p oposed by Hallin and Liska gi es 3 shocks o all o he p oposed penal y
unc ions (independen ly o he ini ial andom pe mu a ion). In summa y, in o ma ion
c i e ia do no p o ide a unique esul , he numbe o shocks being be ween 3 and 6.
He e I conclude in a o o a i e-shock speci ica ion. Below se e al obus ness checks
abou he numbe o ac o s a e made.
Finally he leng h o he block, τ, is se equal o 16.
3.2 The smalles oo o some selec ed sub-sys ems
In his subsec ion I in es iga e whe he he iscal shock is undamen al o he a iables
which a e ypically used in open economy iscal VARs.
I conside six di e en a iables speci ica ions (lis ed in Table 1a) co esponding o
six di e en choices o I(see Sec ion 2.4), deno ed Ijj= 1, ..., 6. The speci ica ions a e
qui e s anda d, in pa icula he i h is he one conside ed in Kim and Roubini (2008).
They all include he eal GDP, he iscal de ici o GDP a io, he cu en accoun
de ici o GDP a io, and he eal exchange a e. They di e each o he because o he
i h a iable included. Fo each speci ica ion he smalles oo o he de e minan o
he co esponding impulse esponse unc ions BIj(L) is compu ed. I he oo is smalle
han one in modulus, he shock is non- undamen al o he a iables de ined in Ij. The
oo s a e compu ed o all he boo s ap epe i ions so ha he en i e dis ibu ion is
a ailable.
Table 1b shows he poin es ima e, he mean, he median, se e al pe cen iles o
he dis ibu ion o he modulus o he smalles oo o he six speci ica ions and he
associa ed p obabili y o being smalle han one. The poin es ima e, he mean, he
median and he 68 h pe cen ile o he dis ibu ion is smalle han one o all he spec-
i ica ions. Wi h p obabili y anging om 0.74 o 0.89 he shock is non- undamen al
o he a iables conside ed in he six speci ica ions. The esul implies ha s anda d
s uc u al VAR echniques wi h he a iables conside ed in he six speci ica ions a e
likely o ail in eco e ing he iscal shock co ec ly.
14The Bai and Ng c i e ia ha e wo pa ame e s. I se δ=.1 o all c i e ia and m(q1) = 1.1,
m(q2) = 1.9, m(q3) = 1.8, m(q4) = 4.
9
no.se ies T ans . Mnemonic Long Label
34 6 GDPCTPI G oss Domes ic P oduc : Chain- ype P ice Index
35 6 GNPCTPI G oss Na ional P oduc : Chain- ype P ice Index
36 6 GDPDEF G oss Domes ic P oduc : Implici P ice De la o
37 6 GNPDEF G oss Na ional P oduc : Implici P ice De la o
38 5 INDPRO Indus ial P oduc ion Index
39 5 IPBUSEQ Indus ial P oduc ion: Business Equipmen
40 5 IPCONGD Indus ial P oduc ion: Consume Goods
41 5 IPDCONGD Indus ial P oduc ion: Du able Consume Goods
42 5 IPFINAL Indus ial P oduc ion: Final P oduc s (Ma ke G oup)
43 5 IPMAT Indus ial P oduc ion: Ma e ials
44 5 IPNCONGD Indus ial P oduc ion: Nondu able Consume Goods
45 2 AWHMAN A e age Weekly Hou s: Manu ac u ing
46 2 AWOTMAN A e age Weekly Hou s: O e ime: Manu ac u ing
47 2 CIVPART Ci ilian Pa icipa ion Ra e
48 5 CLF16OV Ci ilian Labo Fo ce
49 5 CE16OV Ci ilian Employmen
50 5 USPRIV All Employees: To al P i a e Indus ies
51 5 USGOOD All Employees: Goods-P oducing Indus ies
52 5 SRVPRD All Employees: Se ice-P o iding Indus ies
53 5 UNEMPLOY Unemployed
54 5 UEMPMEAN A e age (Mean) Du a ion o Unemploymen
55 2 UNRATE Ci ilian Unemploymen Ra e
56 5 HOUST Housing S a s: To al: New P i a ely Owned Housing Uni s S a ed
57 2 FEDFUNDS E ec i e Fede al Funds Ra e
58 2 TB3MS 3-Mon h T easu y Bill: Seconda y Ma ke Ra e
59 2 GS1 1-Yea T easu y Cons an Ma u i y Ra e
60 2 GS10 10-Yea T easu y Cons an Ma u i y Ra e
61 2 AAA Moody’s Seasoned Aaa Co po a e Bond Yield
62 2 BAA Moody’s Seasoned Baa Co po a e Bond Yield
63 2 MPRIME Bank P ime Loan Ra e
64 6 BOGNONBR Non-Bo owed Rese es o Deposi o y Ins i u ions
65 6 TRARR Boa d o Go e no s To al Rese es, Adjus ed o Changes in Rese e
66 6 BOGAMBSL Boa d o Go e no s Mone a y Base, Adjus ed o Changes in Rese e
67 6 M1SL M1 Money S ock
68 6 M2MSL M2 Minus
69 6 M2SL M2 Money S ock
16

no.se ies T ans . Mnemonic Long Label
70 6 BUSLOANS Comme cial and Indus ial Loans a All Comme cial Banks
71 6 CONSUMER Consume (Indi idual) Loans a All Comme cial Banks
72 6 LOANINV To al Loans and In es men s a All Comme cial Banks
73 6 REALLN Real Es a e Loans a All Comme cial Banks
74 6 TOTALSL To al Consume C edi Ou s anding
75 6 CPIAUCSL Consume P ice Index Fo All U ban Consume s: All I ems
76 6 CPIULFSL Consume P ice Index o All U ban Consume s: All I ems Less Food
77 6 CPILEGSL Consume P ice Index o All U ban Consume s: All I ems Less Ene gy
78 6 CPILFESL Consume P ice Index o All U ban Consume s: All I ems Less Food & Ene gy
79 6 CPIENGSL Consume P ice Index o All U ban Consume s: Ene gy
80 6 CPIUFDSL Consume P ice Index o All U ban Consume s: Food
81 6 PPICPE P oduce P ice Index Finished Goods: Capi al Equipmen
82 6 PPICRM P oduce P ice Index: C ude Ma e ials o Fu he P ocessing
83 6 PPIFCG P oduce P ice Index: Finished Consume Goods
84 6 PPIFGS P oduce P ice Index: Finished Goods
85 6 OILPRICE Spo Oil P ice: Wes Texas In e media e
86 5 USSHRPRCF US Dow Jones Indus ials Sha e P ice Index (EP) NADJ
87 5 US500STK US S anda d & Poo ’s Index i 500 Common S ocks
88 5 USI62...F US Sha e P ice Index NADJ
89 5 USNOIDN.D US Manu ac u e s New O de s o Non De ense Capi al Goods (BCI 27)
90 5 USCNORCGD US New O de s o Consume Goods & Ma e ials (BCI 8) CONA
91 1 USNAPMNO US ISM Manu ac u e s Su ey: New O de s Index SADJ
92 5 USVACTOTO US Index o Help Wan ed Ad e ising VOLA
93 5 USCYLEAD US The Con e ence Boa d Leading Economic Indica o s Index SADJ
94 5 USECRIWLH US Economic Cycle Resea ch Ins i u e Weekly Leading Index
95 2 GS10-FEDFUNDS
96 2 GS1-FEDFUNDS
97 2 BAA-FEDFUNDS
98 5 GEXPND/GDPDEF Go e nmen Cu en Expendi u es/ GDP de la o
99 5 GRECPT/GDPDEF Go e nmen Cu en Receip s/ GDP de la o
100 2 GDEF Go e nnen Real Expend-Real Receip s
101 5 GCEC1 Real Go e nmen Consump ion Expendi u es & G oss In es men , 1 Decimal
102 5 Real Fede al Cons. Expendi u es & G oss In es men Na ional De ense
103 2 Fede al p ima y de ici
104 5 Real Fede al Cu en Tax Re enues
105 5 Real Go e nmen Cu en Tax Re enues
106 2 Go e nmen p ima y de ici
107 4 RER1 Real exchange a e Majo cu encies
108 4 RER2 Real exchange a e B oad
109 4 NER Nominal exchange a e: Majo cu encies
110 4 Te ms o T ade IMP DEFL/EXP DEFL
111 2 Go e nmen p ima y de ici /GDP
112 2 CUR Cu en Accoun /GDP
113 2 TRBAL T ade Balance/GDP
114 2 Go e nmen p ima y de ici /GDP
115 5 P i a e Sa ing (Disponsable Income - Consump ion)
17
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21

Tables
j Va iables(*)
1 GDP(1), De ici (111), CUR(112), RER(107), Go . Cons. & In . (101)
2 GDP(1), De ici (111), CUR(112), RER(107), Cons.(11)
3 GDP(1), De ici (111), CUR(112), RER(107), In . (7)
4 GDP(1), De ici (111), CUR(112), RER(107), CPI(75)
5 GDP(1), De ici (111), CUR(112), RER(107), In . a e(58)
6 GDP(1), De ici (111), CUR(112), RER(107), S ock P ices(87)
(*) The numbe s co espond o hose in he Appendix.
Table 1a: Va iables
j Poin Es Mean Median 68% 84% 90% 95% p ob.
1 0.5891 0.6377 0.6902 0.8438 0.9534 1.0014 1.0388 0.8990
2 0.2529 0.7142 0.7713 0.9207 1.0223 1.0503 1.0782 0.8030
3 0.1345 0.7229 0.7900 0.9089 1.0011 1.0347 1.0630 0.8390
4 0.3219 0.6846 0.7533 0.8917 1.0029 1.0300 1.0540 0.8370
5 0.8705 0.6733 0.7203 0.8959 1.0059 1.0430 1.0693 0.8180
6 0.8563 0.7378 0.8325 0.9653 1.0347 1.0608 1.0838 0.7430
Table 1b: Modulus o he smalles oo .
22
iˆ
βiˆγi
1 0.0199 (0.1062) 0.1317 (0.2707)
2 0.0209 (0.1050) 0.0318 (0.2709)
3 -0.0015 (0.1047) 0.1430 (0.2761)
4 -0.0146 (0.1068) 0.0077 (-0.0795)
F- es H0:γi= 0, i = 1, ..., 4 F=0.021
Table 2: G ange causali y. The eg ession is
shock =α+P4
i=1 βishock −i+P4
i=1 γisp −i+ε . S anda d e o s in pa en hesis.
Va iables 0 4 8 20 To al
111 13.4831 4.7675 5.3842 7.9807 13.9665
112 17.9564 16.6256 13.5680 11.2501 14.1853
113 12.2453 14.8414 12.6473 10.9221 11.8825
107 11.6440 11.4998 11.3543 11.3894 11.3894
109 16.7146 15.2427 14.9971 14.7958 14.7958
110 7.0172 6.0647 6.0690 6.0358 6.0358
1 16.1968 5.0842 4.0832 4.2564 13.6802
11 6.5370 5.0644 6.8215 9.4937 9.8759
7 9.6978 2.7724 3.1201 4.8522 9.1006
Table 3: Va iance decomposi ion
23
Figu es
Figu e 1: Impulse esponse unc ions o an expansiona y iscal policy shock.
24
Figu e 2: Robus ness: 13 ac o s (solid line), 10 ac o s (do ed line), 16 ac o s
(dashed line).
25