How do fiscal and technology shocks affect real exchange rates?

Enders, Zeno; Müller, Gernot; Scholl, Almuth

doi:10.1016/j.jinteco.2010.08.005

Cited by 152 publications

(117 citation statements)

References 69 publications

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“…Very similar evidence has been documented earlier by Kim and Roubini (2008), Perotti (2006), andRavn et al (2007). Enders et al (2008) also document a fall in the real exchange rate, while using a different identification scheme based on sign restrictions. Indeed, empirical studies have documented real depreciation after a positive government spending shock not only for the U.S., but also for Australia, and the UK.…”

Section: Resultssupporting

confidence: 83%

Fiscal Stimulus with Spending Reversals

Corsetti

Meier

Müller

2012

Review of Economics and Statistics

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217

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThe impact of fiscal stimulus depends not only on short-term tax and spending policies, but also on expectations about offsetting measures in the future. This paper analyzes the effects of an increase in government spending under a plausible debt-stabilizing policy that systematically reduces spending below trend over time, in response to rising public liabilities. Accounting for such spending reversals brings an otherwise standard new Keynesian model in line with the stylized facts of fiscal transmission, including the crowding-in of consumption and the 'puzzle' of real exchange rate depreciation. Time series evidence for the U.S. supports the empirical relevance of endogenous spending reversals.

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Section: Resultssupporting

confidence: 83%

Fiscal Stimulus with Spending Reversals

Corsetti

Meier

Müller

2012

Review of Economics and Statistics

Self Cite

217

220

View full text Add to dashboard Cite

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“…In particular, an increase in the labor productivity in the US induces an appreciation of the terms of trade and the real exchange rate, which is at odds with the predictions of standard international macroeconomic models that we have just shown. Similar findings are also documented in Corsetti, Dedola, and Leduc (2006), Enders, Muller, and Scholl (2008), and Enders and Muller (2009). Figure 3 shows the impulse response functions of the terms of trade and the real exchange rate for the rest of the countries in our sample.…”

Section: Predictions Of Standard Models and Empirical Findingssupporting

confidence: 84%

Understanding the Effect of Productivity Changes on International Relative Prices: The Role of News Shocks

Nam

Wang

2010

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The terms of trade and the real exchange rate of the US appreciate when the US labor productivity increases relative to the rest of the world. This finding is at odds with predictions from standard international macroeconomic models. In this paper, we find that incorporating news shocks to total factor productivity (TFP) in an otherwise standard dynamic stochastic general equilibrium (DSGE) model with variable capital utilization can help the model replicate the above empirical finding. Labor productivity increases in our model after a positive news shock to TFP because of an increase in capital utilization. Under some plausible calibrations, the wealth effect of good news about future productivity can increase domestic demand strongly and induce an increase in home prices relative to foreign prices.

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“…Several empirical studies indeed find that the real exchange rate depreciates persistently in response to an unexpected exogenous increase in government expenditures (Corsetti and Müller [2006], Kim and Roubini [2008], Müller [2008], Monacelli and Perotti [2010], Enders, Müller and Scholl [2011], Ravn, Schmitt-Grohé and Uribe [2011], and Bouakez, Chihi and Normandin [2011]). This result holds across different countries, sample periods, and identification schemes, and is thus increasingly becoming a generally accepted stylized fact.…”

Section: Introductionmentioning

confidence: 99%

Government spending, monetary policy, and the real exchange rate

Bouakez

Eyquem

2015

Journal of International Money and Finance

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Abstract:A robust prediction across a wide range of open-economy macroeconomic models is that an unanticipated increase in public spending in a given country appreciates it currency in real terms. This result, however, contradicts the findings of a number of recent empirical studies, which instead document a significant and persistent depreciation of the real exchange rate following an expansionary government spending shock. In this paper, we rationalize the findings of the empirical literature by proposing a small-open-economy model that features three key ingredients: incomplete and imperfect international financial markets, sticky prices, and a not-too-aggressive monetary policy. The model predicts that in response to an unexpected increase in public expenditures, the effective long-term real interest rate falls, causing the real exchange rate to depreciate. We establish this result both analytically, within a special version of the model, and numerically for the more general case.

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How do fiscal and technology shocks affect real exchange rates?

Cited by 152 publications

References 69 publications

Fiscal Stimulus with Spending Reversals

Fiscal Stimulus with Spending Reversals

Understanding the Effect of Productivity Changes on International Relative Prices: The Role of News Shocks

Government spending, monetary policy, and the real exchange rate

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