# WAGE MODEL. AS AN ALTERNATIVE WAY – Speedy Loan Online : Evidence on the Effects of a Shock to Fiscal Policy

In this section we accomplish two tasks. First, we describe our strategy for estimating the effects of an exogenous shock to fiscal policy. Second, we present the results of implementing this strategy.

**2.1. Identifying the Effects of A Fiscal Policy Shock**

Ramey and Shapiro (1998) use a ‘narrative approach’ to isolate three arguably exogenous events that led to large military buildups and total government purchases: the beginning of the Korean War (1950:3), the beginning of major U.S. involvement in the Vietnam War (1965:1) and the beginning of the Carter-Reagan defense buildup (1980:1).

To estimate the exogenous movements in government purchases, Gt, and average marginal tax rates, rt, induced by the onset of a Ramey-Shapiro episode and the corresponding movements in other variables, we use the following procedure. Define the set of dummy variables Dt, where Dt = 1 if t = {1950:3, 1965:1, 1980:1} and zero otherwise. We include Dt as an explanatory variable in a vector autoregression (VAR). Suppose that the k x 1 vector stochastic process Zt has the representation:

and E is a positive definite k x k matrix. The Ai can be consistently estimated using least squares. The response of Zit+k, the ith element of Zt+k, to the onset of a Ramey-Shapiro episode at date t, is given by the coefficient on Lk in the expansion of [I — Ai{L)L]~l A2(L). Note that this procedure assumes that the Ramey-Shapiro episodes are of equal intensity.

**2.2. Empirical Results**

In this subsection we present the results of implementing the procedure discussed above. Unless otherwise noted, the vector Zt contains the log level of time t real GDP, the three month Treasury bill rate, the log of the producer price index of crude fuel, the log level of a measure of the average marginal income tax rate, the log level of real government purchases and either the log level of real wages or the log of aggregate hours worked. Sometimes people work all days long without any breakes at all and once they decide to have rest or to go anywhere but money in their pockets is not enough to realize all wishes. In such a case they may check out the web site speedy-payday-loans.com and find the information about different loans with various percentage rates. This sum of money will help them to make all wishes come true.

Our measure of the tax rate, taken from Stephenson (1998), is an updated version of the average marginal statutory tax rate constructed by Barro and Sahasakul (1983). It is a weighted average of statutory marginal tax rates, where the weights are the shares of adjusted gross income subject to each statutory rate.0 In all cases we included six lagged values of all variables in the VAR. All estimates are based on quarterly data from 1947:1 to 1994:4.

Figure 1 reports the responses of real government purchases and the tax rate to the onset of a Ramey-Shapiro episode. The solid lines display point estimates of the coefficients of the dynamic response functions.6 The dashed lines are sixty-eight percent confidence intervals. Consistent with results in Ramey and Shapiro (1998) and Edelberg, Eichenbaum and Fisher (1999), the onset of a Ramey-Shapiro episode leads to a large, persistent, hump-shaped rise in government purchases, with a peak response of 13 percent roughly 6 quarters after the shock. In addition, the tax rate rises in a hump-shaped pattern, mirroring the hump-shaped dynamic response function of government purchases, The peak response of 2.3 percentage points occurs roughly 7 quarters after the onset of a Ramey-Shapiro episode. This represents a rise of roughly 13 percent in the tax rate relative to its value in 1949.

Figure 1 also displays the responses of aggregate hours worked in the private sector and the after – tax real wage in the manufacturing sector to the onset of a Ramey-Shapiro episode. Two key results emerge here. First, hours worked has a delayed, hump-shaped response with a peak response of over 2 percent occurring roughly 6 periods after the fiscal shock. Second, the after-tax real wage falls after the fiscal policy shock.

*Figure 1: Fiscal Policy and Labor Market Dynamics After a Ramey-Shapiro Episode*