Three Essays in Macroeconometrics

This dissertation comprises three self-contained chapters in macroeconometrics tackling three current macroeconomic issues. The first chapter, “Economic Policy Uncertainty in the US: Does it matter for the Euro Area", is a single-authored paper. It studies to what extent an economic policy uncertainty shock generated in the US triggers spillover effects in the Euro Area macroeconomic activity. I estimate a two-country Structural Vector Autoregressive (SVAR) model capturing the US economic policy uncertainty shock by appealing to some indicators recently proposed by Baker, Bloom and Davis (2013). The impulse responses predict a negative and statistically significant reaction of Euro area price and quantity indicators to an unexpected increase in the US policy uncertainty. The results support the view that the effects of such shock act like a demand "type" shock. Interestingly, the Euro area variables are estimated to respond strongly to US uncertainty shock than to the European counterpart. A note from this chapter has been published in the Economics Letters. The second chapter, "Estimating Fiscal Multipliers: News from a non-linear Word", is a joint work with Giovanni Caggiano, Efrem Castelnuovo and Gabriela Nodari. We estimate the effects of a US government spending news shock on output multipliers. We deal with the issue of fiscal foresight (anticipated fiscal policy changes) by appealing to the sums of revisions of expectations on future government spending. This measure is used to add more information to a standard three-variate fiscal VAR model a la Blanchard and Perotti (2002). To study the effects of anticipated fiscal policy shocks conditionally on the state of economy (in recessions and expansions), we estimate a non-linear VAR (Smooth Transition VAR). We compute non-linear generalized impulse responses (GIRFs) a la Koop, Pesaran, and Potter (1996) to take into account the probability of smoothly switching from a regime to another due to the fiscal shock. Results show that an anticipated fiscal spending shock triggers a significant reaction of GDP. Such reaction is not significantly different between recessions and expansions. However, when we discriminate between "extreme events" (i.e., the recent great recession), we find a reaction of output significantly different among regimes. Fiscal multipliers in recessions are estimated above one and government spending news shocks are found to induce economic stabilization. This chapter is forthcoming in the Economic Journal. The third chapter, "Opening the Red Budget Box: Real Effects of a Tax Shock in the UK", is a single-authored paper. It studies non-linear impulse responses to unanticipated tax shocks for output and its components. To do so, I estimate a non-linear version of the local projection technique developed by Jorda (2005). The identification of the tax shock is achieved by appealing to the measure of exogenous tax changes in the UK developed by Cloyne (2013). Tax shocks are found to affect UK macroeconomic variables depending when such shocks occur (in recessions or in expansions). An unexpected increase in the tax rate occurring in recessions triggers a large, persistent and negative reaction in output, consumption, investment, imports and government consumption. The results suggest that output tax multipliers are negative and above one (in absolute value) in recessions but not in expansions.The size and the sign of multipliers for most of the macroeconomic indicators above considered are also found to be state-dependent.