Multilateral Economic Cooperation and the International Transmission of Fiscal Policy

Giancarlo Corsetti and Gernot Müller

No 17708, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: During the global financial crisis 2007-2009 fiscal policy was widely used as a stabilization tool. Policymakers allowed a large build-up of public debt resulting from both automatic and discretionary expansionary measures. At the same time, calls for policy coordination stressed that international spillovers of fiscal policy might be sizeable. We reconsider the case for fiscal coordination by providing new evidence on the cross-border effects of discretionary fiscal measures. We rely on a vector autoregression model as well as on a quantitative business cycle model. We find that i) large spillover effects cannot be ruled out and, in contrast to conventional wisdom, ii) financial factors rather than trade flows lie at the heart of the international transmission mechanism. We discuss the implications of these results for policy coordination when markets price sovereign default risk, and put pressure on governments for implementing budget consolidation measures.

JEL-codes: E62 F42 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-opm
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published as Multilateral Economic Cooperation and the International Transmission of Fiscal Policy , Giancarlo Corsetti, Gernot J. Müller. in Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century , Feenstra and Taylor. 2014

Downloads: (external link)
http://www.nber.org/papers/w17708.pdf (application/pdf)

Related works:
Chapter: Multilateral Economic Cooperation and the International Transmission of Fiscal Policy (2013)
Working Paper: Multilateral economic cooperation and the international transmission of fiscal policy (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:17708

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w17708

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().