Government spending shocks in open economy VARs
By M. Forni, Luca Gambetti. 2014
119 citations recorded by the source corpus.
By using the Survey of Professional Forecasters, we provide new evidence on the open-economy effects of government spending, focusing on a well-known puzzle in the literature, that the real exchange rate depreciates in response to a fiscal expansion. Much of government spending is well anticipated over a one year horizon. Once news and surprise shocks are treated as different shocks, there is no depreciation puzzle for news shocks while it is still there for surprise shocks. Fiscal foresight seems to lie at the heart of the different exchange rate responses to news and surprise shocks, depending on the timing of the anticipated budget adjustment following the shock. Indeed, the results are broadly consistent with the prediction of a DSGE model with spending reversals.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/35b92ebebf72349acedb6998355326d3f6315b51
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In Economics and Econometrics
- Evi Pappa
- Nadav Ben Zeev
- Bianca de Paoli
- Aleksei Netsunajev
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- M. Cacciatore
- G. Fiori
Citations in the corpus
- Chronicle of a war foretold : the macroeconomic effects of anticipated defense spending shocks (2014, methodology): “Mertens and Ravn (2010), for example, use a DSGE model to derive a fiscal SVAR estimator that is applicable when shocks are permanent and anticipated, and apply it to U.”