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Spillovers from US Government Spending Shocks: Impact on External Positions
Author:
Ms. Adina Popescu
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and
Mr. Ippei Shibatanull

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Series:
Spillover Notes
Volume/Issue:
Volume 2017: Issue 001
Language:
English
Publication Date:
18 Oct 2017
DOI:
https://doi.org/10.5089/9781484320259.062
ISBN:
9781484320259
ISSN:
2522-7890
Pages:
15
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
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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.
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Cover Spillover Notes
Spillover Notes
ISSN:
2522-7890
Publisher:
International Monetary Fund
Volume 2017: Issue 001