Spillovers from US Government Spending Shocks: Impact on External Positions
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Summary:
This note analyzes the impact of preannounced government spending shocks in the United States on the real effective exchange rate and the trade balance. Using a vector autoregression framework that allows anticipated fiscal shocks to be identified using survey information, we find that preannounced spending shocks lead to a sizable real effective dollar appreciation and a worsening of both the aggregate trade balance and bilateral trade balances in a panel of partner countries. The results are robust to controlling for country-specific variables like the macroeconomic and policy conditions in the recipient countries, are generalized across regions and might have decreased during the zero-interest-lower-bound regime.
Series:
Spillover Notes No. 2017/001
Subject:
Exchange rates Expenditure Fiscal policy Fiscal stimulus Foreign exchange International trade Real exchange rates Trade balance
English
Publication Date:
October 18, 2017
ISBN/ISSN:
9781484320259/2522-7890
Stock No:
SNEA2017001
Pages:
15
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