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How do Fiscal and Technology Shocks affect Real Exchange Rates? New Evidence for the United States

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Author Info
Zeno Enders () (University of Bonn, Bonn Graduate School of Economics)
Gernot J. Müller () (Goethe University Frankfurt)
Almut Scholl () (Goethe University Frankfurt)

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Abstract

Using vector autoregressions on U.S. time series relative to an aggregate of industrialized countries, this paper provides new evidence on the dynamic effects of government spending and technology shocks on the real exchange rate and the terms of trade. To achieve identi¬fication, we derive robust restrictions on the sign of several impulse responses from a two-country general equilibrium model. We find that both the real exchange rate and the terms of trade – whose responses are left unrestricted – depreciate in response to expansionary govern¬ment spending shocks and appreciate in response to positive technology shocks.

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Paper provided by Center for Financial Studies in its series CFS Working Paper Series with number 2008/22.

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Length: 41 pages
Date of creation: 18 Jul 2008
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Handle: RePEc:cfs:cfswop:wp200822

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Related research
Keywords: Real Exchange Rate; Terms of Trade; International Transmission Mechanism; Government Spending Shocks; Technology Shocks; VAR; Sign Restrictions;

Find related papers by JEL classification:
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. L. Marattin & S. Salotti, 2009. "The Response of Private Consumption to Different Public Spending Categories: VAR Evidence from UK," Working Papers 670, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
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