Expectations-based identification of government spending shocks: job market paper

This paper addresses the econometric problems of structural vector autoregressive (SVAR) analysis of the effects of government spending when, due to anticipation effects, private agents have more information than the econometrician investigating their behavior. Using a combination of general equilibrium theory and SVAR simulations, I demonstrate how adding survey expectations to the regression not only equalizes the information sets but also makes it possible to identify structural spending shocks. In particular, I show that the econometrician can exploit natural expectations-based identifying restrictions by using survey data. In an application to U.S. data, the expectations-based approach indicates a weaker impact of government spending on output, consumption and investment than the standard fiscal SVAR approach, which does not take into account anticipation effects.