Change of the Budget Multiplier when Switching from Managed Exchange Rate Regime to Floating Exchange Rate Regime

In this work, I analyzed the change of the fiscal multiplier when switching from managed exchange rate regime to the floating one in emerging countries. For this purpose panel SVAR model with fixed effects was built. Such methodology was implemented for the first time on the data for emerging countries. Not only GDP and government expenditures were included as endogenous variables in SVAR, but also other macroeconomic variables were also included to control for their effect on the fiscal multipliers. As the length of the available data was not so long, theoretical DSGE model was built to support gained empirical results. DSGE model was built on the basis of Nakamura and Steinsson, 2014 paper. From the estimates achieved in SVAR and DSGE models, the change of on-impact fiscal multiplier is 0.4 – 0.5 for emerging countries. Moreover, during estimation, it was obtained that the openness of the economy affects the estimates of the multipliers which was not yet proved in the existing literature. In addition, in this work, the micro-founded fiscal multiplier was estimated for the first time for Russia based on the same DSGE model. The on-impact multiplier for Russia is 0.2 ± 0.1. All long-term multipliers in SVAR and DSGE estimates are close to zero.