## Spillovers from US Government Spending Shocks: Impact on External Positions

_Spillover Notes, October 18, 2017_

## Source details

**Canonical URL:** [Spillovers from US Government Spending Shocks: Impact on External Positions](https://www.imf.org/en/publications/spillover-notes/issues/2017/10/18/spillovers-from-us-government-spending-shocks-impact-on-external-positions-45267)

## Other formats

- [Markdown version](/en/publications/spillover-notes/issues/2017/10/18/spillovers-from-us-government-spending-shocks-impact-on-external-positions-45267/index.md)
- [Structured JSON version](/en/publications/spillover-notes/issues/2017/10/18/spillovers-from-us-government-spending-shocks-impact-on-external-positions-45267/index.json)
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## Bibliographic details
- Authors: Adina Popescu, Ippei Shibata
- Published: October 18, 2017
- Series: Spillover Notes
- DOI: https://doi.org/10.5089/9781484320259.062

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### Summary and methodology
- Objective: Analyze the impact of preannounced government spending shocks in the United States on the real effective exchange rate and the trade balance.
- Method: Vector autoregression framework that allows anticipated fiscal shocks to be identified using survey information.

### Key findings
- Preannounced US government spending shocks lead to a sizable real effective dollar appreciation.
- Such shocks cause a worsening of the aggregate trade balance.
- Bilateral trade balances in a panel of partner countries also worsen following preannounced US spending shocks.
- Results are robust to controlling for country-specific variables, including macroeconomic and policy conditions in recipient countries.
- Effects are generalized across regions.
- The spillovers might have decreased during the zero-interest-lower-bound regime.

### Policy-relevant implications
- Anticipated US fiscal expansions can have meaningful external effects through exchange rate appreciation and trade deterioration for partner countries.
- Recipient-country macroeconomic and policy conditions matter for the transmission but do not eliminate the adverse trade-balance effects.
- Consideration of monetary policy regimes (for example, the zero-interest-lower-bound) is important when assessing the magnitude of spillovers.

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## Content in this bundle

- **Staff Paper**
  - [Staff Paper (Markdown version)](/-/media/files/publications/spillovernotes/spillovernote10.pdf.md){rel="alternate" type="text/markdown"}
  - [Staff Paper (PDF)](/-/media/files/publications/spillovernotes/spillovernote10.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/spillover-notes/issues/2017/10/18/spillovers-from-us-government-spending-shocks-impact-on-external-positions-45267_