Impact of Fiscal Policy on the Macroeconomic Aggregates in Turkey: Evidence from BVAR Model

Abstract

One of the central tenets of macroeconomics is that fiscal policy can be effective in stabilizing the economy and achieving to the macroeconomic targets. Past few decades witnessed to extensive use of monetary policy tools to this end. There has been, however, a renewed interest in the use of fiscal policy as a stabilizing tool since the onset of the recent Global Financial Crisis. Macroeconomic consequences of government expenditures and revenues and their impacts on the general economic structure have been investigated by various empirical methods in case of several countries and in Turkey as well. In this paper, away from previous studies, the subject is implemented by Bayesian vector autoregression (BVAR) technique. Since it considers the prior information, BVAR method is able to give more realistic estimations compared with other VAR models. Empirical findings reveal that government expenditures and revenues have limited impact on the macroeconomic variables set which includes GDP, inflation, stock market index, external debt and interest rate.