Abstract: This paper investigates the e ect of a government expenditure shock on consumption
and real wages. I identify the shock by exploiting its pre-announced
nature, i.e. di erent signs of the responses of investment, hours worked and
output during the announcement and after the realization of the shock. Since
pre-announcement leads to a non-stationary moving average representation I estimate
and identify a VMA model. The identifying restrictions are derived from
a DSGE model, which is estimated by matching the impulse response functions
of the VMA model. Private consumption is found to respond negatively during
the announcement period and positively after the realization. Real wages react
signi cantly positive on impact, decrease during the announcement horizon and
react signi cantly positive for two quarters after the realization.
JEL classi cation: C32, E62, H0.
Keywords: Fiscal Policy shock, Bayesian Estimation, DSGE model, Vector Autoregression.