We present alternative methods for calculating and interpreting the influence of exogenous shocks on historical episodes within the context of DSGE models. We show analytically why different methods for calculating shock decompositions can generate conflicting interpretations of the same historical episodes. We illustrate this point using an extended version of Drautzburg and Uhlig's (2015) model of the U.S. economy, focusing on the periods 1964-1966, 1979-1987, 2007-2008 and 2016-2018. We argue that the best method for analyzing particular episodes is one which isolates the influence of the shocks during the period under consideration and where the initial conditions represent the system's distance from steady state at the beginning of the episode.

This paper investigates the effects of government expenditure on economic growth in the US during the post-WWII period. We estimate historical multipliers that are allowed to vary along the timeline without explicitly modelling for the regimes. We use a Time-Varying Parameter version of the Blanchard and Perotti (2002) Vector Autoregression model, identified via a mixture of short-term zero- and sign-restrictions; data is prepared for estimation using Hamilton's (2018) linear projection method. The paper delivers a set of notable results. First, TVP-VAR models can successfully estimate government expenditure multipliers that depend on the stage of the business cycle. Second, this relationship experiences a structural break in the 1980s; estimated multipliers are counter-cyclical before the late 1980s and pro-cyclical afterwards. Third, we conclude that discretionary government expenditure became less potent in stimulating output after the 1980s due to a decrease in non-defence public consumption multiplier. Finally, we justify the necessity to investigate a connection between inflation targeting policies and the state-dependent nature of the fiscal multiplier.

 This paper proposes a new digital-currency-enabled monetary policy tool: sector-specific cashback payments on private consumption expenditure. Using a two-sector New Keynesian model, we show how the monetary policy toolkit can benefit from adopting such instruments in two important instances. First, cashback payments provide a way to stimulate aggregate demand when the policy rate is at the zero lower bound without relying on the intermediate role of financial or corporate sectors in propagating liquidity injections. Secondly, we demonstrate how the adoption of simple cashback rate rules can produce a more efficient allocation of resources under asymmetric shocks compared to a simple implementable interest rate rule alone. The analysis proceeds to draw relationships between the size of the welfare gain associated with the introduction of these novel instruments and degrees of price stickiness, labour mobility, and relative size of the sectors.