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The Effects of Fiscal Policy in Great Recession by using Panel Smooth Transition Regression (PSTR): Evidence from Emerging Market

Received: 6 April 2014     Accepted: 22 April 2014     Published: 30 April 2014
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Abstract

This article examines the effect of fiscal policy on economic growth in emerging countries during periods of economic instability. This work aimed to determine whether emerging countries are able to adopt countercyclical fiscal policies to mitigate the impact from outside. Our study used a new approach developed by González and al. (2005), the (PSTR) model. This model has been studied in 23 emerging countries grouped into four regions: Latin America, Emerging Europe, Asia and Africa and covers the period 1990-2012. Our research will focus on the effect of fiscal policy in emerging countries on their economic growth during periods of instability. This model confirmed the non-linear relationship between fiscal policy and activity in these countries. Indeed, it can highlight the asymmetric effect of fiscal policy on activity distinguishing between two regimes. Our results show that in an unsustainable fiscal situation, the pro-cyclical fiscal policy is a solution to avoid the higher cost of debt and during the crisis a strong fiscal position is fundamental to ensuring macroeconomic stability.

Published in International Journal of Business and Economics Research (Volume 3, Issue 2)
DOI 10.11648/j.ijber.20140302.17
Page(s) 99-107
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2014. Published by Science Publishing Group

Keywords

Great Recession, Fiscal Policy, Smooth Transition Models, Emerging Markets

References
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[3] Aghevli B.B. [1999]. The Asian Crisis Causes and Remedies. Finances and Development, IMF, Volume 36, N°2.
[4] Billio, Monica & Casarin, Roberto and Ravazzolo, Francesco and van Dijk, H. K., (2013). Interactions between Euro zone and US Booms and Busts: A Bayesian Panel Markov-Switching VAR Model. Norges Bank Working Paper 20.
[5] Blanchard O. & Perotti R. [2002]. An Empirical Characterization of Dynamic Effects of Changes in Government Spending and Taxes on Output. Quarterly Journal of Economics, 117, p. 1329-368.
[6] Baldacci E., Gupta S. & Mati A. [2008]. Is It Still Mostly Fiscal? Determinants of Sovereign Spreads in Emerging Markets. IMF Working Paper 08/259.
[7] Bouthevillain C. & Dufrénot G. [2010]. Are the Effects of Fiscal Changes Different in Times of Crisis and Non-crisis? The French Case. Working papers 286, Banque de France.
[8] Fok, D., van Dijk, D. & Franses, P. [2005]. A multi-level Panel STAR Model for US Manufacturing Sectors. Journal of Applied Econometrics 20, 811–827.
[9] Fouquau J., Hurlin C. & Rabaud I. [2007]. The Feldstein-Horioka Puzzle: A Panel Smooth Transition Regression Approach. WP halshs-00156688, HAL.
[10] Gavin M., Perotti R. & Talvi E. [1996]. Managing Fiscal Policy in Latin America: Volatility, procyclicality and Limited Creditworthiness. Washington DC: Inter-American Development Bank.
[11] Gavin M. & Perotti R. [1997]. Fiscal Policy in Latin America. NBER Macroeconomics Annual.
[12] Giavazzi F., Jappelli T.,Pagano & Benedetti M. [2005]. Searching for Non-monotonic Effects of Fiscal Policy: New Evidence, Monetary and Economic Studies. Special Edition, 197-231.
[13] González A., Terasvirta T. & Van Dijk, D. [2005]. Panel Smooth Transition Regression Models. SSE/EFI Working Paper Series in Economics and Finance, No. 604.
[14] González-Hermosillo B. & Hesse H. [2009]. Global Market Conditions and Systemic Risk. IMF Working Paper 09/230.
[15] Hansen, B.E. [1999]. Threshold Effects in Non-Dynamic Panels: Estimation, Testing, and Inference. Journal of Econometrics 93, 334-368.
[16] Honig A. [2006]. A model of Liability Dollarization and Myopic Governments. International Economic Journal, Korean International Economic Association, Vol. 203, p 343-355.
[17] Hutchison M. M., Noy I. & Wang L. [2010]. Fiscal and Monetary Policies and the Cost of Sudden Stops. Journal of International Money and Finance, Vol. 296, p973-987.
[18] Jawadi F., Mallick S. K. & Sousa R.M. [2011]. Fiscal Policy in the BRICs. NIPE WP 19 -Universidade do Minho.
[19] Kaufmann, S. (2011). K-state Switching Models with Endogenous Transition Distribution. Swiss National Bank, Working Paper 2011-13.
[20] Kirchner M., Cimadomo J. & Hauptmeier S. [2010]. Transmission of Government Spending Shocks in the Euro Area: Time Variation and Driving forces. ECB WP, 1219.
[21] Philip R. Lane & Gian Maria Milesi-Ferretti [2007]. The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004", Journal of International Economics 73, November, 223-250.
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  • APA Style

    Amira Majoul, Olfa Manai Daboussi. (2014). The Effects of Fiscal Policy in Great Recession by using Panel Smooth Transition Regression (PSTR): Evidence from Emerging Market. International Journal of Business and Economics Research, 3(2), 99-107. https://doi.org/10.11648/j.ijber.20140302.17

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    ACS Style

    Amira Majoul; Olfa Manai Daboussi. The Effects of Fiscal Policy in Great Recession by using Panel Smooth Transition Regression (PSTR): Evidence from Emerging Market. Int. J. Bus. Econ. Res. 2014, 3(2), 99-107. doi: 10.11648/j.ijber.20140302.17

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    AMA Style

    Amira Majoul, Olfa Manai Daboussi. The Effects of Fiscal Policy in Great Recession by using Panel Smooth Transition Regression (PSTR): Evidence from Emerging Market. Int J Bus Econ Res. 2014;3(2):99-107. doi: 10.11648/j.ijber.20140302.17

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  • @article{10.11648/j.ijber.20140302.17,
      author = {Amira Majoul and Olfa Manai Daboussi},
      title = {The Effects of Fiscal Policy in Great Recession by using Panel Smooth Transition Regression (PSTR): Evidence from Emerging Market},
      journal = {International Journal of Business and Economics Research},
      volume = {3},
      number = {2},
      pages = {99-107},
      doi = {10.11648/j.ijber.20140302.17},
      url = {https://doi.org/10.11648/j.ijber.20140302.17},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20140302.17},
      abstract = {This article examines the effect of fiscal policy on economic growth in emerging countries during periods of economic instability. This work aimed to determine whether emerging countries are able to adopt countercyclical fiscal policies to mitigate the impact from outside. Our study used a new approach developed by González and al. (2005), the (PSTR) model. This model has been studied in 23 emerging countries grouped into four regions: Latin America, Emerging Europe, Asia and Africa and covers the period 1990-2012. Our research will focus on the effect of fiscal policy in emerging countries on their economic growth during periods of instability. This model confirmed the non-linear relationship between fiscal policy and activity in these countries. Indeed, it can highlight the asymmetric effect of fiscal policy on activity distinguishing between two regimes. Our results show that in an unsustainable fiscal situation, the pro-cyclical fiscal policy is a solution to avoid the higher cost of debt and during the crisis a strong fiscal position is fundamental to ensuring macroeconomic stability.},
     year = {2014}
    }
    

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    AU  - Amira Majoul
    AU  - Olfa Manai Daboussi
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    JF  - International Journal of Business and Economics Research
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    AB  - This article examines the effect of fiscal policy on economic growth in emerging countries during periods of economic instability. This work aimed to determine whether emerging countries are able to adopt countercyclical fiscal policies to mitigate the impact from outside. Our study used a new approach developed by González and al. (2005), the (PSTR) model. This model has been studied in 23 emerging countries grouped into four regions: Latin America, Emerging Europe, Asia and Africa and covers the period 1990-2012. Our research will focus on the effect of fiscal policy in emerging countries on their economic growth during periods of instability. This model confirmed the non-linear relationship between fiscal policy and activity in these countries. Indeed, it can highlight the asymmetric effect of fiscal policy on activity distinguishing between two regimes. Our results show that in an unsustainable fiscal situation, the pro-cyclical fiscal policy is a solution to avoid the higher cost of debt and during the crisis a strong fiscal position is fundamental to ensuring macroeconomic stability.
    VL  - 3
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Author Information
  • Applied Quantitative Analysis, Unit (UAQUAP), Tunisia ISG and GATE (UMR 5824 CNRS)

  • Higher Institute of Management of Tunis, University of Tunis, Tunisia

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