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Models of international fiscal spillovers

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  • Devereux, Michael B.
  • Yu, Changhua

Abstract

The paper explores the implications for fiscal policy spillovers that are implied by some of the more widely used open economy macroeconomic models. Starting from the basic New Keynesian open economy model, we look at how different assumptions about price adjustment, size and openness, and the relevance of the zero bound affect the predictions for fiscal spillovers. Our analysis indicates that the direction and magnitude of fiscal spillovers depends sensitively on many structural factors and the stance of monetary policy. Any argument for the use of fiscal policy must take these features into account.

Suggested Citation

  • Devereux, Michael B. & Yu, Changhua, 2019. "Models of international fiscal spillovers," Economics Letters, Elsevier, vol. 175(C), pages 76-79.
    • Handle: RePEc:eee:ecolet:v:175:y:2019:i:c:p:76-79
    DOI: 10.1016/j.econlet.2018.12.016
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    References listed on IDEAS

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    1. Michael B. Devereux, 2018. "International Fiscal Spillovers: A Review Essay," Korean Economic Review, Korean Economic Association, vol. 34, pages 29-50.
    2. Michael B Devereux & Karine Gente & Changhua Yu, 2023. "Production Networks And International Fiscal Spillovers," The Economic Journal, Royal Economic Society, vol. 133(653), pages 1871-1900.
    3. Michael Woodford, 2011. "Simple Analytics of the Government Expenditure Multiplier," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 1-35, January.
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    Cited by:

    1. Dohwa, Kohjiro, 2024. "The role of local currency pricing in the international transmission effects of a government spending shock in an economy with vertical production linkage and foreign direct investment," Journal of Macroeconomics, Elsevier, vol. 80(C).
    2. Klein, Mathias & Linnemann, Ludger, 2024. "Tax shocks, firm entry, and productivity in the open economy," Journal of International Money and Finance, Elsevier, vol. 149(C).
    3. Jingchao Li, 2022. "Fiscal shocks and spillovers in a dynamic two-country model," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(1), pages 53-83, February.

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    More about this item

    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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