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Business and Economics > Public Finance

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  • Type: Journal Issue x
  • Spillover Notes x
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Cover Spillover Notes
Fiscal Spillovers: The Importance of Macroeconomic and Policy Conditions in Transmission
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.
Keywords:
SN; exchange rate; government spending; economic activity; expenditure switching; source country; recipient country; government spending shock; euro area; Spillovers; Interest rate floor; Exchange rate arrangements; Global; Europe; Asia and Pacific
Cover Spillover Notes
Spillovers from US Government Spending Shocks: Impact on External Positions
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.
Keywords:
SN; exchange rate; spending; fiscal policy; trade balance response; aggregate trade balance; exchange rate appreciation; government spending shock; trade balance deterioration; Trade balance; Real exchange rates; Fiscal stimulus; Exchange rates; Global; US government spending shock; external PositionsSpillovers; monetary policy