Government Spending Shocks in Open Economy VARs

Mario Forni and Luca Gambetti

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

Abstract: We identify government spending news and surprise shocks using a novel identification based on the Survey of Professional Forecasters. News shocks lead, through an increase of the interest rate, to a real appreciation of US dollar and a worsening of the trade balance. The opposite is found for the standard surprise shock which raises government spending on impact: the currency depreciates and net exports improve. We reconcile the two conflicting results showing the di erent timing of the spending reversals associated with the two shocks. The e ects of the news shock on government spending are much more persistent and the reversal occurs much later.

Keywords: Business Cycle Fluctuations; Euro area; Common Shocks; Near-Structural VARs. (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Pages: pages 33
Date: 2014-10
New Economics Papers: this item is included in nep-mac, nep-opm and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Government spending shocks in open economy VARs (2016)
Working Paper: Government Spending Shocks in Open Economy VARs (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:mod:recent:105

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