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The Effect of Fiscal Policy Shocks on the Flow of Funds
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Paper
The Effect of Fiscal Policy Shocks on the Flow of Funds
2013
Overview
This paper uses a selection of fiscal vector autoregression models to identify the effect of fiscal policy shocks on the private sectorâ[euro](TM)s balance sheet using the Flow of Funds. As well, I examine the response of treasury interest rates, the Federal Funds rate and the assets of the Federal Reserve to gauge the response of monetary policy to fiscal policy shocks. I find that the Federal Reserve does not respond to fiscal policy shocks in any significant way. I also find that the business sector responds to fiscal policy shocks but not very strongly. The household sector responds more clearly. Fiscal policy shocks have an effect on householdâ[euro](TM)s holdings of both short term liquid assets and long term illiquid assets. Spending shocks also have a clear effect on mortgage lending.
Publisher
Federal Reserve Bank of St. Louis
Subject
