Estimation Of Fiscal Policy Multipliers Based On TVP-VAR Model

Ever since the global financial crisis hit in 2008, countries around the globe have carried out numerous kinds of proactive financial policies to stimulate macro economy to weather the economic crisis. China has also adopted a proactive financial policy, launching the economic stimulus package plan with a total investment value of 4 trillion RMB. The rise of this economic crisis has also drawn major attention of many countries on the theory of financial policy. As China now stands on a primary stage of its market economy, it is all the more necessary to pay attention to the effect of financial policy, so as to fulfill the goal of stabilizing macro-economy.Based on the traditional VAR model, this paper builds a TVP-VAR(Time Varying Parameter Vector Autoregression) model in which the covariance matrix of coefficient,simultaneous parameter and impact vary. By applying Bayesian inference and Gibbs sampling method, the impulse response of financial policy is obtained, hence different kinds of multipliers of financial policies can be estimated. The estimation of financial policy multiplier in this paper is categorized in terms of government spending and tax, categorizing the multiplier into government spending multiplier, government investment multiplier, government spending multiplier, tax multiplier, direct multiplier and indirect multiplier. The effects and differences of different kinds of multipliers are shown by comparing and analyzing the tendency and scale of multiplier.Through the description and analysis of three multipliers in terms of government spending, it can be concluded that: multipliers of government spending, investment and spending share a similar tendency, which rises at first and levels off on a long-term basis, but presents an inverted U shape on a yearly basis. The multipliers are larger during the period when economic crisis occurred. Besides, there exist relatively large differences among the three multipliers: government investment multiplier, followed by government spending multiplier, is the largest among the three,which indicates the effect of financial policies in the aspect of government investment is more obvious.Through the description and analysis of three multipliers in terms of tax, it can be concluded that: multipliers of tax, direct tax and indirect tax share a similar tendency with that of government spending, only with a relatively acute fluctuation. In terms of value, the absolute value of government spending multiplier is larger than that of tax multiplier. In general, the three multipliers in terms of tax are similar, indicating their effects in regulating macro economy are generally the same. But with more detailed analysis, it is shown that the direct tax multiplier is slightly smaller than indirect tax multiplier. Therefore, combination of different tax polices shouldbe considered in order to achieve the better effect of tax policies.Through the detailed analysis carried out in this paper on multipliers in terms of government spending and tax, it can be concluded that: different types of financial policies bear varied multiplier effects in adjusting macro economy; the frame of financial policies should be rationally structured by taking different combination of policies into consideration during policy making, so as to regulate macro economy more rapidly and more accurately, as well as stabilize the development of national economy. Meanwhile, considering the differences of multipliers of different financial policies, it is necessary to carry out respective research on different financial policies, providing theoretical basis for the implementation of financial policies.Finally, based on the estimation of multipliers,this paper use the simple least squares regression analysis on the influence factors of the multiplier,it can be concluded that: Government spending multiplier is larger in the recession,and the higher economic uncertainty is,the smaller government spending multiplier is,that is, the effect of the government spending policy is weaker.But for the tax multiplier, there is no significant impact in the four factors.