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Exchange rate regimes and fiscal multipliers

Listed author(s):
  • Born, Benjamin
  • Juessen, Falko
  • Müller, Gernot J.

Does the fiscal multiplier depend on the exchange rate regime? To address this question, we first estimate a panel vector autoregression (VAR) model on time-series data for OECD countries. We identify the effects of unanticipated government spending shocks in countries with fixed and floating exchange rates, while controlling for anticipated changes in government spending. In a second step, we interpret the evidence through the lens of a New Keynesian small open economy model. We find that government spending multipliers are considerably larger under fixed exchange rate regimes and that the New Keynesian model provides a satisfactory account of the evidence.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165188912001984
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 2 ()
Pages: 446-465

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:2:p:446-465
DOI: 10.1016/j.jedc.2012.09.014
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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