Exchange rate regimes and fiscal multipliers

Benjamin Born, Falko Juessen and Gernot Müller

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 2, 446-465

Abstract: Does the fiscal multiplier depend on the exchange rate regime? To address this question, we first estimate a panel vector autoregression (VAR) model on time-series data for OECD countries. We identify the effects of unanticipated government spending shocks in countries with fixed and floating exchange rates, while controlling for anticipated changes in government spending. In a second step, we interpret the evidence through the lens of a New Keynesian small open economy model. We find that government spending multipliers are considerably larger under fixed exchange rate regimes and that the New Keynesian model provides a satisfactory account of the evidence.

Keywords: Fiscal policy; Exchange rate regime; Fiscal multiplier; Monetary policy; Panel VAR; New Keynesian model (search for similar items in EconPapers)
JEL-codes: E62 F41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (104)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:2:p:446-465

DOI: 10.1016/j.jedc.2012.09.014

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