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The international transmission of US fiscal shocks

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  • Natoli, Filippo
  • Metelli, Luca

Abstract

We investigate the international propagation of fiscal policy shocks originated in the United States using a Global VAR framework. We identify shocks to US tax rates and government spending by using narrative series as external instruments, following the proxy SVAR methodology. The main results of the paper are the following: (1) the domestic effects of tax shocks are stronger than those of a government spending shock (2) spillovers are in most cases positive and significant, albeit of small size; (3) the boost to exports in recipient economies, stimulated both by stronger US demand and by real exchange rate depreciation vis-à-vis the US dollar, is the main transmission channel; financial channels (through long-term interest rates and equity prices) also play a role.

Suggested Citation

  • Natoli, Filippo & Metelli, Luca, 2018. "The international transmission of US fiscal shocks," MPRA Paper 84207, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:84207
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    Cited by:

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    2. Andrea Colabella, 2019. "Do the ECB’s monetary policies benefit emerging market economies? A GVAR analysis on the crisis and post-crisis period," Temi di discussione (Economic working papers) 1207, Bank of Italy, Economic Research and International Relations Area.
    3. Luigi Bonatti & Andrea Fracasso & Roberto Tamborini, 2021. "Monetary and Fiscal Spillovers Across the Atlantic: The Role of Financial Markets," DEM Working Papers 2021/09, Department of Economics and Management.
    4. Madeline Hanson & Daniela Hauser & Romanos Priftis, 2021. "Fiscal Spillovers: The Case of US Corporate and Personal Income Taxes," Staff Working Papers 21-41, Bank of Canada.

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    More about this item

    Keywords

    international fiscal spillovers; proxy SVAR; GVAR;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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