Fiscal policy shocks and international spillovers

Ilori, Ayobami E.; Paez-Farrell, Juan and Thoenissen, Christoph (2022). Fiscal policy shocks and international spillovers. European Economic Review, 141, article no. 103969.

DOI: https://doi.org/10.1016/j.euroecorev.2021.103969

Abstract

The domestic and international transmission mechanism of fiscal policy shocks are analysed in the United States and in Germany. Using a Bayesian VAR approach, we find that in both of these countries a fiscal expansion is associated with increases in output as well as in private consumption and investment. The terms of trade, which affect the international transmission of fiscal policy shocks, 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 expansionary for most, but not all European economies, both within and outside the euro area. The dynamics of the BVAR can be rationalised using a dynamic stochastic general equilibrium model where heterogeneous households and firms face borrowing constraints.

Viewing alternatives

Look up in Google Scholar

Download history

Metrics

Public Attention

Altmetrics from Altmetric

Number of Citations

Citations from Dimensions

Item Actions

Export

About

CORE (COnnecting REpositories)

Recommendations