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U.S. Fiscal Volatility Spillovers to Emerging Economies

Author

Listed:
  • Francisco Roch

    (UTDT)

  • Juan Urquiza

    (Pontificia Universidad Catolica de Chile)

  • Alejandro Vicondoa

    (Pontificia Universidad Catolica de Chile)

Abstract

This paper quantifies the international spillovers of U.S. fiscal volatility shocks to emerging economies (EMEs). We identify U.S. fiscal volatility shocks by estimating fiscal reaction functions with time-varying volatility. A one standard deviation U.S. fiscal volatility shock, similar to the 2011 debt-ceiling episode, reduces output by 0.4 percent and investment by 0.7 percent in EMEs after one year, lasting around 10 quarters. The shock propagates primarily through global financial conditions and commodity prices, affecting EMEs borrowing costs and accounting for 7 percent of EMEs business cycle fluctuations. The impact is lower in economies with inflation-targeting frameworks and fiscal rules.

Suggested Citation

  • Francisco Roch & Juan Urquiza & Alejandro Vicondoa, 2026. "U.S. Fiscal Volatility Spillovers to Emerging Economies," Working Papers 400, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:400
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/400.pdf
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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