Policy Mix and the US Trade Balance
IMF Working Papers, September 19, 2017
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Bibliographic details
- Authors: Gustavo Adler
- Published: September 19, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484319314.001
Research question and methodology
- Objective: Study the trade spillovers of the post-2008-09 crisis US policy mix by assessing the joint impact of monetary and fiscal policy.
- Method: Sign-restricted structural VAR approach.
Key findings
- Aggregate trade effects, as reflected in the trade balance, varied across time, reflecting the different timing of fiscal and monetary stimuli.
- Overall positive spillovers in the immediate aftermath of the crisis.
- Effects differed greatly between trading partners with fixed and flexible exchange rates, reflecting the different transmission mechanisms of monetary policy.
- Joint analysis of fiscal and monetary policy is important to avoid attenuation bias from omitted variables.
- Trading partners’ exchange rate regimes are of first order importance in determining the impact of policy spillovers.
Themes and implications
- Focus on combined deployment: The study highlights that attention on monetary stimulus alone misses important channels when fiscal policy is also deployed.
- Heterogeneous spillovers: Exchange rate arrangements (fixed versus flexible) crucially shape the cross-border impact of US policy actions.
- Methodological implication: Sign-restricted structural VARs provide a framework for isolating joint policy shocks and their international trade effects.
Policy Mix and the US Trade Balance — Gustavo Adler, September 19, 2017 (IMF Working Papers).
Content in this bundle
- Policy Mix and the US Trade Balance, WP/17/204, September 2017