Fiscal policy shocks and international spillovers

Ayobami Ilori, Juan Paez-Farrell and Christoph Thoenissen

No 2020010, Working Papers from The University of Sheffield, Department of Economics

Abstract: The domestic and international transmission mechanism of fiscal policy shocks are analysed in large developed economies. Using a Bayesian VAR approach, we find that fiscal expansions are associated with increases in output, private consumption and, in many cases, with an in- crease in private investment. The terms of trade, which affect the international transmission of fiscal policy shocks, are found to depreciate in response to a fiscal expansion, thus transferring some of the increased domestic purchasing power abroad. A US government spending shock is expansionary for all non-US G7 members. A German government spending shock is expansion- ary for most, but not all European economies, both within and outside the Euro Area. The dynamics of the BVAR are rationalised using a dynamics stochastic general equilibrium model where heterogeneous households and firms face borrowing constraints.

Keywords: Fiscal policy; Bayesian VAR; DSGE modelling; International business cycles; spillovers (search for similar items in EconPapers)
JEL-codes: E62 F41 F42 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2020-11
New Economics Papers: this item is included in nep-dge, nep-mac, nep-opm and nep-ore
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Citations: View citations in EconPapers (3)

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https://www.sheffield.ac.uk/economics/research/serps First version, November 2020 (application/pdf)

Related works:
Journal Article: Fiscal policy shocks and international spillovers (2022)
Working Paper: Fiscal policy shocks and international spillovers (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:shf:wpaper:2020010

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