Litainas, M., McAdam, P., Montagnoli, A. et al. (1 more author) (2024) News and Surprises: Revisiting fiscal shocks in the open economy. Working Paper. Sheffield Economic Research Paper Series, 2024009 (2024009). Department of Economics, University of Sheffield ISSN 1749-8368
Abstract
Despite extensive research on fiscal policy effects in recent times, comprehensive studies on the international transmission of structural fiscal shocks remains limited and inconclusive. We address these shortcomings in three key ways. First, we confront the perfect foresight problem associated to anticipated fiscal shocks by incorporating a proxy for fiscal policy news into a detailed multi-country model. This is the first study to use such a proxy to empirically determine the cross-border transmission of US fiscal shocks in such a detailed setting. Second, we use a Bayesian multi-country VAR, which, unlike existing two-country model studies, fully accounts for higher-order spillover effects. Third, with this setup, our empirical results reassess the interpretation of fiscal multipliers from New-Keynesian closed-economy models. Key findings include: i) international spillovers mainly operate through trade channels (expenditure switching and boosting); ii) the transmission mechanism hinges on the recipient country’s underlying ‘growth model; and iii) higher-order spillover effects markedly amplify direct spillover effects; and iv) the exchange rate puzzle is rather an artifact of an omitted variable problem and of the policy regime.
Metadata
Item Type: | Monograph |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2024 The Author(s). For reuse permissions, please contact the Author(s). The Sheffield Economic Research Paper Series (SERPS) offers a forum for the research output of the Department of Economics, University of Sheffield. Papers are reviewed for quality and presentation by two internal referees and a departmental editor. However, the contents and opinions expressed remain the responsibility of the author(s). Comments are welcomed and should be addressed to the individual author(s). |
Keywords: | Fiscal Foresight; Exchange Rate Puzzle; Openness; Bayesian Multi-Country VAR; Spillovers |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Department of Economics (Sheffield) > Sheffield Economics Research Papers Series The University of Sheffield > Faculty of Social Sciences (Sheffield) > Department of Economics (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 31 Oct 2024 09:48 |
Last Modified: | 06 Nov 2024 10:27 |
Published Version: | https://www.sheffield.ac.uk/economics/research/ser... |
Status: | Published |
Publisher: | Department of Economics, University of Sheffield |
Series Name: | Sheffield Economic Research Paper Series |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:219024 |