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How do fiscal and technology shocks affect real exchange rates?: New evidence for the United States

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  • Enders, Zeno
  • Müller, Gernot J.
  • Scholl, Almuth

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 identification, 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 government spending shocks and appreciate in response to positive technology shocks.

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  • Enders, Zeno & Müller, Gernot J. & Scholl, Almuth, 2011. "How do fiscal and technology shocks affect real exchange rates?: New evidence for the United States," Journal of International Economics, Elsevier, vol. 83(1), pages 53-69, January.
  • Handle: RePEc:eee:inecon:v:83:y:2011:i:1:p:53-69
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    More about this item

    Keywords

    Real exchange rate Terms of trade Government spending shocks Technology shocks VAR Sign restrictions;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

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