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Fiscal Policy and Macroeconomic Performance in the Democratic Republic of Congo

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In this paper we identify the impact of a government spending shock (hereinafter referred to as fiscal shock) in the Democratic Republic of Congo (DRC) and estimate its contribution in explaining the variability in output. We apply and estimate two structural vector autoregressive (VAR) models in order to answer these questions. Firstly, we compute the fiscal multipliers of some sub-periods of our data. Subsequently, we identify the fiscal shock by using two identification strategies namely the sign identification and Cholesky decomposition. We have developed and estimated a SVAR (1) by applying the sign identification and The Time Varying Coefficient with Stochastic Volatility (TVC-SV) by using the Cholesky decomposition. Our results show that: the fiscal multiplier has achieved its highest value (i.e. 2%) during the period 2012-2015. Fiscal and investment shocks explain most of the variability in output in the SVAR model while the business cycle shock plays a significant role in explaining the fluctuations in output in the TVC-SV model. The TVC-SV model helps match the low volatility of output observed in the data over the period 2007 2015. Our results align with findings in the literature and provide evidence to support that the management of macroeconomic policies over the period 2012-2015 has been the most performing and has contributed to stabilize the DRC macroeconomic framework

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Josué M. Diwambuena et Jean-Paul B. Boketsu

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