A0426
Title: Fiscal policy, international spillovers, and endogenous productivity
Authors: Mathias Klein - Sveriges Riksbank (Sweden) [presenting]
Abstract: Empirical evidence is presented on the international effects of US fiscal policy from structural vector autoregressions identified through external instruments in a panel setting for the G7 countries. An exogenous increase in US government spending is estimated to produce sizeable positive responses of output and consumption in the rest of the G7 countries, both about half as large as their domestic US counterparts, while strongly depreciating the US terms of trade and lowering short-run real interest rates. Moreover, fiscal shocks are estimated to have a strongly positive impact on hourly labor productivity in the private sector. We solve a two-country New Keynesian model in closed form and show that a low-cost elasticity of varying technology utilization can simultaneously explain the positive productivity, consumption and international spillover effects as well as the real depreciation resulting from expansionary US government spending shocks.
