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International Fiscal Spillovers: an Empirical Reassessment

Guest speaker

Vasco Gabriel (U. Surrey)




Start24.03.2021 11:00End24.03.2021 12:00

Event summary

This paper studies the influence of fiscal policy measures in the US on other countries. Specifically, we analyse the effects of these shocks on key macroeconomic variables in Canada and the UK by using a structural vector autoregressive model in which US fiscal shocks are identified by the use of external instruments. We consider two types of US fiscal shocks (i.e. US government spending shocks and US tax revenue shocks, respectively) and various instruments are considered for identifying each type of shocks. The results show that the spillover effects from US fiscal shocks are not uniform across countries, types of shocks, and the various identifying instruments. In general, US fiscal shocks cause the trade balance in the UK to increase while they cause the Canadian dollar to appreciate versus the US dollar. In addition, the magnitude of the effects is larger to US government spending shocks compared to US tax revenue shocks. In case of shocks to the US government spending, local currencies (i.e. the British pound and the Canadian dollar) appreciate versus the US dollar, whereas shocks to the tax revenue policy, the trade balance in both countries increases.