Spillovers from US Government Spending Shocks: Impact on External Positions

October 18, 2017

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Adina Popescu, and Ippei Shibata. Spillovers from US Government Spending Shocks: Impact on External Positions, (USA: International Monetary Fund, 2017) accessed November 21, 2024

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.

Subject: Exchange rates, Expenditure, Fiscal policy, Fiscal stimulus, Foreign exchange, International trade, Real exchange rates, Trade balance

Keywords: Aggregate trade balance, Exchange rate, Exchange rate appreciation, Exchange rates, External PositionsSpillovers, Fiscal policy, Fiscal stimulus, Global, Government spending shock, Monetary policy, Real exchange rates, SN, Spending, Trade balance, Trade balance deterioration, Trade balance response, US government spending shock

Publication Details

Pages:

15
Volume:

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DOI:

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Issue:

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Series:

Spillover Notes No. 2017/001
Stock No:

SNEA2017001
ISBN:

9781484320259
ISSN:

2522-7890

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