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ESTIMATING FISCAL REACTION FUNCTIONS FOR DEVELOPING AND DEVELOPED COUNTRIES: A DYNAMIC PANEL THRESHOLD ANALYSIS

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Turan T., Varol Iyídogan P.
Ekonomický časopis (Journal of Economics)
|
2022
|
vol. 70
|
issue 5
393 – 410
EN
Using a dynamic threshold regression method to estimate fiscal reaction functions, this paper examines the response of the primary surplus, government expenditure, and government revenue to the public debt for a large sample of countries over the period 2000 – 2018. Our empirical results lend a strong evidence for the dynamic threshold specification. Governments implement a sustainable fiscal policy until reaching the threshold level, but beyond this level the primary balance does not react to changes in public debt in developing countries. On the other hand, for developed countries, primary balance gives a negative (positive) response to an increase in the public debt when the debt is lower (higher) than the threshold level. Moreover, it seems that the primary balance is countercyclical. Besides the primary surplus, investigating the response of government expenditure and revenue provides valuable insights on the fiscal policy. Finally, dividing our sample as pre- and post-crisis periods we uncover some important changes in the fiscal policy after the last global financial crisis.
2

NEW EVIDENCE ON THE PBOC’S REACTION FUNCTION

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El-Shagi M., Ma Y.
Ekonomický časopis (Journal of Economics)
|
2025
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vol. 73
|
issue 1-2
3 – 35
EN
While policy reaction functions of most major central banks are routinely approximated by fitting Taylor (type) rules to their policy rate, there is no such consensus for the People’s Bank of China (PBoC). What makes it hard to get a clear impression of the “true” reaction function is that most papers in the extensive literature focus on a single aspect of the reaction function typically mostly comparing it to one (or a few) widely used baseline models. Contrarily, we assess a broad range of questions regarding the reaction function in a unified approach, estimating several hundred reaction functions. While we find that no single policy measure fully captures all aspects of the PBoC’s policy, our paper provides clear evidence for asymmetric behaviour, support for an important role of monetary aggregates. There is robust evidence that the PBoC includes objectives beyond price and business cycle stabilization; more specifically, there is robust evidence that it responds to financial stability, considers its own macro-prudential policy by flanking it with cushioning monetary policies, and stabilizes the exchange rate.
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