This article analyzes fiscal policy reaction function with switching regimes for Ukraine. We demonstrate that the fiscal policy reaction function in Ukraine has a nonlinear nature. The analysis revealed that the fiscal policy of Ukraine has been in a passive regime for a long time and a switch to this mode took place in late 2006 with the beginning of rapid economic growth. By means of the LSTR models, it is shown that at high levels of debt and the GDP gap the fiscal policy switches to an active regime. However, such switching is rare and short, and therefore does not have an impact on the overall picture. We also found an asymmetry in the response of fiscal policy on the GDP gap depending on the phase of the economic cycle. In our opinion, this asymmetry is the main obstacle to switching the fiscal policy in active regime.
Working paper info
Fiscal Policy Rection and Sustainability of Fiscal Policy in Ukraine
C. Macro, financial markets and open macroeconomy