Government Spending Shocks in Open Economy VARs

Mario Forni and Luca Gambetti

No 10115, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We identify government spending news and surprise shocks using a novel identification based on the Survey of Professional Forecasters. News shocks lead to an increase of the interest rate, 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 different timing of the spending reversals associated with the two shocks. The effects of the news shock on government spending are much more persistent and the reversal occurs much later.

Keywords: Structual vars; Government spending; Fiscal policy; Forecast revisions; Government spending news; Survey of professional forecasters; Crowding-out; Fiscal foresight (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Date: 2014-08
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (7)

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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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