Spillovers from US Government Spending Shocks: Impact on External Positions

Adina Popescu and Ippei Shibata

No 2017/001, IMF Spillover Notes from International Monetary Fund

Abstract: 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.

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 (search for similar items in EconPapers)
Pages: 15
Date: 2017-10-18
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