Fiscal Spillovers
Fiscal Spillovers

Author: Patrick Blagrave

Publisher: International Monetary Fund

Published: 2017-10-18

Total Pages: 31

ISBN-13: 1484352416

DOWNLOAD EBOOK

Are fiscal spillovers today as large as they were during the global financial crisis? How do they depend on economic and policy conditions? This note informs the debate on the cross-border impact of fiscal policy on economic activity, shedding light on the magnitude and the factors affecting transmission, such as the fiscal instruments used, cyclical positions, monetary policy conditions, and exchange rate regimes. The note assesses spillovers from five major advanced economies (France, Germany, Japan, United Kingdom, United States) on 55 advanced and emerging market economies that represent 85 percent of global output, looking at government-spending and tax revenue shocks during expansion and consolidation episodes. It finds that fiscal spillovers are economically significant in the presence of slack and/or accommodative monetary policy—and considerably smaller otherwise, which suggests that spillovers are large when domestic multipliers are also large. It also finds that spillovers from government-spending shocks are larger and more persistent than those from tax shocks and that transmission may be stronger among countries with fixed exchange rates. The evidence suggests that although spillovers from fiscal policies in the current environment may not be as large as they were during the crisis, they may still be important under certain economic circumstances.

Fiscal Spillovers in the Euro Area: Letting the Data Speak
Fiscal Spillovers in the Euro Area: Letting the Data Speak

Author: Ms.Era Dabla-Norris

Publisher: International Monetary Fund

Published: 2017-11-15

Total Pages: 50

ISBN-13: 1484328264

DOWNLOAD EBOOK

We estimate a panel VAR model that captures cross-country, dynamic interlinkages for 10 euro area countries using quarterly data for the period 1999-2016. Our analysis suggests that fiscal spillovers are significant and tend to be larger for countries with close trade and financial links as well, as for fiscal shocks originating from larger countries. The current account appears to be the main channel of transmission, although strong trade integration among countries in the euro area and spillback effects tend to zero-out the net trade impact in some cases. A subsample analysis shows that the effects of fiscal policy have changed over time, with larger estimated domestic multipliers and spillovers between 2011 and 2014.

Cross-Country Spillovers of Fiscal Consolidations in the Euro Area
Cross-Country Spillovers of Fiscal Consolidations in the Euro Area

Author: Mr.Tigran Poghosyan

Publisher: International Monetary Fund

Published: 2017-06-30

Total Pages: 37

ISBN-13: 1484306236

DOWNLOAD EBOOK

This paper revisits the issue of cross-country spillovers from fiscal consolidations using an innovative empirical methodology. We find evidence in support of fiscal spillovers in 10 euro area countries. Fiscal consolidation in one country not only reduces domestic output (direct effect), but also the output of other member countries (indirect/spillover effect). Fiscal spillovers are larger for: (i) more closely located and economically integrated countries, and (ii) fiscal shocks originating from relatively larger countries. On average, 1 percent of GDP fiscal consolidation in 10 euro area countries reduces the combined output by 0.6 percent on impact, out of which half is driven by indirect effects from fiscal spillovers. The impact peters out and becomes insignificant over the medium-term. It is largely driven by tax measures, which have a relatively stronger effect on output compared to expenditure measures. The results are robust to alternative measures of bilateral links across countries.

Do Fiscal Spillovers Matter?
Do Fiscal Spillovers Matter?

Author: Anna Ivanova

Publisher: International Monetary Fund

Published: 2011-09-01

Total Pages: 45

ISBN-13: 146390231X

DOWNLOAD EBOOK

The paper assesses the impact of fiscal spillovers on growth in the context of a coordinated exit from crisis management policies. We find that despite potentially sizeable domestic effects from consolidation, aggregate negative spillovers to other countries are likely to be contained in 2011-2012 unless fiscal multipliers and/or imports elasticities are very large. Small and open European economies, however, will be substantially affected in any case. In contrast, the coordinated exit from fiscal stimulus will have limited direct effect on European peripheral countries since they are relatively closed, with the notable exception of Ireland.

International Fiscal-financial Spillovers: The Effect of Fiscal Shocks on Cross-border Bank Lending
International Fiscal-financial Spillovers: The Effect of Fiscal Shocks on Cross-border Bank Lending

Author: Sangyup Choi

Publisher: International Monetary Fund

Published: 2019-07-12

Total Pages: 60

ISBN-13: 1484389697

DOWNLOAD EBOOK

This paper sheds new light on the degree of international fiscal-financial spillovers by investigating the effect of domestic fiscal policies on cross-border bank lending. By estimating the dynamic response of U.S. cross-border bank lending towards the 45 recipient countries to exogenous domestic fiscal shocks (both measured by spending and revenue) between 1990Q1 and 2012Q4, we find that expansionary domestic fiscal shocks lead to a statistically significant increase in cross-border bank lending. The magnitude of the effect is also economically significant: the effect of 1 percent of GDP increase (decrease) in spending (revenue) is comparable to an exogenous decline in the federal funds rate. We also find that fiscal shocks tend to have larger effects during periods of recessions than expansions in the source country, and that the adverse effect of a fiscal consolidation is larger than the positive effect of the same size of a fiscal expansion. In contrast, we do not find systematic and statistically significant differences in the spillover effects across recipient countries depending on their exchange rate regime, although capital controls seem to play some moderating role. The extension of the analysis to a panel of 16 small open economies confirms the finding from the U.S. economy.

Spillovers from US Government Spending Shocks
Spillovers from US Government Spending Shocks

Author: Ms.Adina Popescu

Publisher: International Monetary Fund

Published: 2017-10-18

Total Pages: 15

ISBN-13: 1484325222

DOWNLOAD EBOOK

This note analyzes the impact of preannounced government spending shocks in the United States on the real effective exchange rate and the trade balance. Using a vector autoregression framework that allows anticipated fiscal shocks to be identified using survey information, we find that preannounced spending shocks lead to a sizable real effective dollar appreciation and a worsening of both the aggregate trade balance and bilateral trade balances in a panel of partner countries. The results are robust to controlling for country-specific variables like the macroeconomic and policy conditions in the recipient countries, are generalized across regions and might have decreased during the zero-interest-lower-bound regime.

Local Fiscal Multipliers and Fiscal Spillovers in the United States
Local Fiscal Multipliers and Fiscal Spillovers in the United States

Author: Alan J. Auerbach

Publisher:

Published: 2019

Total Pages: 29

ISBN-13:

DOWNLOAD EBOOK

We estimate local fiscal multipliers and spillovers for the United States using a rich dataset based on U.S. Department of Defense contracts and a variety of outcome variables relating to income and employment. We find strong positive spillovers across locations and industries. Both backward linkages and general equilibrium effects (e.g., income multipliers) contribute to the positive spillovers. Geographical spillovers appear to dissipate fairly quickly with distance. Our evidence points to the relevance of Keynesian-type models that feature excess capacity.

License to Spill: How Do We Discuss Spillovers in Article IV Staff Reports
License to Spill: How Do We Discuss Spillovers in Article IV Staff Reports

Author: Jelle Barkema

Publisher: International Monetary Fund

Published: 2021-05-07

Total Pages: 25

ISBN-13: 1513573675

DOWNLOAD EBOOK

This paper dives into the Fund’s historical coverage of cross-border spillovers in its surveillance. We use a state-of-the-art deep learning model to analyze the discussion of spillovers in all IMF Article IV staff reports between 2010 and 2019. We find that overall, while the discussion of spillovers decreased over time, it was pronounced in the staff reports of some systemically important economies and during periods of global spillover events. Spillover discussions were more prominent in staff reports covering advanced and emerging market economies, possibly reflecting their role as sources of global spillovers. The coverage of spillovers was higher in the context of the real, financial, and external sectors. Also, countries with larger economies, higher trade and capital account openess and lower inflation are more likely to discuss spillovers in their Article IV staff reports.

Cross-Country Spillovers of Fiscal Consolidations in the Euro Area
Cross-Country Spillovers of Fiscal Consolidations in the Euro Area

Author: Mr.Tigran Poghosyan

Publisher: International Monetary Fund

Published: 2017-06-28

Total Pages: 37

ISBN-13: 1484304373

DOWNLOAD EBOOK

This paper revisits the issue of cross-country spillovers from fiscal consolidations using an innovative empirical methodology. We find evidence in support of fiscal spillovers in 10 euro area countries. Fiscal consolidation in one country not only reduces domestic output (direct effect), but also the output of other member countries (indirect/spillover effect). Fiscal spillovers are larger for: (i) more closely located and economically integrated countries, and (ii) fiscal shocks originating from relatively larger countries. On average, 1 percent of GDP fiscal consolidation in 10 euro area countries reduces the combined output by 0.6 percent on impact, out of which half is driven by indirect effects from fiscal spillovers. The impact peters out and becomes insignificant over the medium-term. It is largely driven by tax measures, which have a relatively stronger effect on output compared to expenditure measures. The results are robust to alternative measures of bilateral links across countries.

Economic Spillovers, Structural Reforms and Policy Coordination in the Euro Area
Economic Spillovers, Structural Reforms and Policy Coordination in the Euro Area

Author: Bas van Aarle

Publisher: Springer Science & Business Media

Published: 2007-10-31

Total Pages: 241

ISBN-13: 3790819700

DOWNLOAD EBOOK

This book analyzes economic interdependence in the Euro Area. It offers expert estimates of the sign and size of economic spillovers. Moreover, the authors explore the impact of economic policy coordination on economic performance in the Euro Area. Among the many topics explored are the link between fiscal and monetary policies in the Euro Area and the coordination of fiscal policies and of structural reforms.