Cross-Border Transmission of Fiscal Shocks: The Role of Monetary Conditions

Author/Editor:

Patrick Blagrave ; Giang Ho ; Ksenia Koloskova ; Esteban Vesperoni

Publication Date:

May 9, 2018

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

Fiscal stimulus was widely advocated during the global crisis, a period characterized by monetary policy constrained by the effective lower bound (ELB) in many countries, in part because of expected positive spillovers. Standard New Keynesian models predict the cross-border transmission of fiscal shocks is stronger when monetary policy is constrained in recipients. However, the empirical evidence is scarce. This paper bridges this gap by looking at the impact of fiscal shocks in systemic (source) economies on output and demand components in a large group of (recipient) countries, under different monetary policy conditions. Empirical results are compared to simulations with a state-of-the-art estimated open-economy New Keynesian model. Our results corroborate model predictions, finding larger spillovers when recipients are at the ELB, driven by stronger responses of investment and consumption relative to normal times

Series:

Working Paper No. 18/103

Subject:

English

Publication Date:

May 9, 2018

ISBN/ISSN:

9781484353530/1018-5941

Stock No:

WPIEA2018103

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

32

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