Essays on the transmission channels of macroeconomic policy

Abstract

This thesis consists of three empirical essays, examining the channels through which macroeconomic policy variables can affect the domestic economy. The essays analyse monetary and fiscal policy, identifying dimensions across which the effects of such policies may differ. The first paper examines the impact of government spending across differing exchange rate regimes. Using data for a panel of OECD countries from 1985 to 2011, we identify fiscal shocks as the one period-ahead error in the forecast of government spending and examine their impact on the macroeconomy across fixed and flexible exchange rate regimes. Systematic differences across regime type support the predictions of the Mundell-Fleming model, with fiscal multipliers found to be larger under fixed exchange rates than in flexible exchange rate regimes.