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Ms. Adina Popescu and Mr. Ippei Shibata

Spillovers from us Government Spending Shocks: Impact on External Positions 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 sizeable real effective dollar appreciation and a worsening of both the aggregate trade balance and bilateral trade balances in a panel of partner countries. The

Ms. Adina Popescu and Mr. Ippei Shibata
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.
Ms. Adina Popescu and Mr. Ippei Shibata

Front Matter Page SPILLOVERS NOTES SPILLOVERS FROM US GOVERNMENT SPENDING SHOCKS Impact on External Positions Adina Popescu and Ippei Shibata October 2017 10 SPILLOVER TASK FORCE | INTERNATIONAL MONETARY FUND Front Matter Page © 2017 International Monetary Fund Cover design: IMF Multimedia Services Composition: Katy Whipple Cataloging-in-Publication Data Joint Bank-Fund Library Names: Popescu, Adina. | Shibata, Ippei. | International Monetary Fund. Spillover Task Force. Title: Spillovers from US

Patrick Blagrave, Giang Ho, Ksenia Koloskova, and Mr. Esteban Vesperoni

Government Spending Multipliers Greater during Times of Slack? Evidence from 20th Century Historical Data .” American Economic Review 103 ( 2 ): 129 – 34 . 10.1257/aer.103.3.129 Perotti , R. 2014 . “ Defense Government Spending Is Contractionary, Civilian Government Spending Is Expansionary .” NBER Working Paper 20179 , National Bureau of Economic Research , Cambridge, MA . Popescu , A. , and I. Shibata . 2017 . “ Spillovers from US Government Spending Shocks: Impact on External Positions .” Spillover Note 10 , International Monetary Fund

Ms. Magda E. Kandil

of the Cyclical Behavior of the Real Wage, Southern Economic Journal . Kandil , Magda , , 1998 , “ Supply-Side Asymmetry and the Non-Neutrality of Demand Fluctuations, ” Journal of Macroeconomics , vol. 20 , No. 4 , pp. 785 – 810 . 10.1016/S0164-0704(98)00084-6 Kandil , Magda , , 1999 , “ The Asymmetric Stabilizing Effects of Price Flexibility: Historical Evidence and Implications, ” Applied Economics , 31 , pp. 825 – 839 . 10.1080/000368499323797 Kandil , Magda , , 2001 , “ Asymmetry in the Effects of US Government Spending

Patrick Blagrave, Giang Ho, Ksenia Koloskova, Mr. Esteban Vesperoni, and Mr. Helge Berger

response of recipient country output can be more than four times stronger when its interest rate is exceptionally low as compared to normal times. The difference between responses are statistically significant at the 1, 2, and 7 percent levels of significance for overall, spending, and tax shocks, respectively. This result echoes recent work in the context of domestic multipliers by Ramey and Zubairy (forthcoming) , who find some evidence of higher multipliers for US government spending shocks when the economy is at the ELB. Table 1. Nonlinear Results: ELB vs

Patrick Blagrave, Giang Ho, Ksenia Koloskova, and Mr. Esteban Vesperoni
Are fiscal spillovers today as large as they were during the global financial crisis? How do they depend on economic and policy conditions? This note informs the debate on the cross-border impact of fiscal policy on economic activity, shedding light on the magnitude and the factors affecting transmission, such as the fiscal instruments used, cyclical positions, monetary policy conditions, and exchange rate regimes. The note assesses spillovers from five major advanced economies (France, Germany, Japan, United Kingdom, United States) on 55 advanced and emerging market economies that represent 85 percent of global output, looking at government-spending and tax revenue shocks during expansion and consolidation episodes. It finds that fiscal spillovers are economically significant in the presence of slack and/or accommodative monetary policy—and considerably smaller otherwise, which suggests that spillovers are large when domestic multipliers are also large. It also finds that spillovers from government-spending shocks are larger and more persistent than those from tax shocks and that transmission may be stronger among countries with fixed exchange rates. The evidence suggests that although spillovers from fiscal policies in the current environment may not be as large as they were during the crisis, they may still be important under certain economic circumstances.
Patrick Blagrave, Giang Ho, Ksenia Koloskova, and Mr. Esteban Vesperoni
Fiscal stimulus was widely advocated during the global crisis, a period characterized by monetary policy constrained by the effective lower bound (ELB) in many countries, in part because of expected positive spillovers. Standard New Keynesian models predict the cross-border transmission of fiscal shocks is stronger when monetary policy is constrained in recipients. However, the empirical evidence is scarce. This paper bridges this gap by looking at the impact of fiscal shocks in systemic (source) economies on output and demand components in a large group of (recipient) countries, under different monetary policy conditions. Empirical results are compared to simulations with a state-of-the-art estimated open-economy New Keynesian model. Our results corroborate model predictions, finding larger spillovers when recipients are at the ELB, driven by stronger responses of investment and consumption relative to normal times
Ms. Magda E. Kandil
The paper investigates asymmetry in the allocation of aggregate demand shocks between real output growth and price inflation over the business cycle in a sample of fifteen Caribbean countries. In most countries, the evidence indicates the existence of structural constraints, implying that positive demand shocks feed predominantly into prices while negative demand shocks mainly affect output. The high variability of aggregate demand in Caribbean countries, frequently exposed to shocks that are exacerbated by pro-cyclical policy stance, tends to create an upward bias on inflation and a downward bias on real output growth, on average, over time. The analysis highlights the benefits of eliminating structural rigidities responsible for asymmetric real and inflationary effects and points to the dangers of procyclical macroeconomic policies that exacerbate the adverse effects of demand variability.