We estimate, for the US and other three OECD countries, the effects of government spending shocks on the CPI real exchange rate, the trade balance and their comovements with GDP and private consumption. We then decompose, via alternative methodologies, the (conditional) variations of the CPI real exchange rate into variations of (i) the traded goods real exchange rate, and (ii) the relative price of traded to non-traded goods. We reach three main conclusions. First, in all countries a rise in government spending induces a depreciation of the CPI real exchange rate and a trade balance deficit. In the US, however, the effect on the trade balance is small. Second, in all countries private consumption rises in response to a government spending shock, and therefore comoves positively with the real exchange rate. Third, both components of the CPI real exchange depreciate. The contribution of the relative price of non-traded goods is sizeable, and particularly so in the case in which traded goods prices are measured in terms of export and import prices. We argue that all these results stand in stark contrast with a baseline open-economy business cycle model augmented with non-traded goods.

Fiscal policy, the real exchange rate, and traded goods

Monacelli,Tommaso;Perotti, Roberto
2010

Abstract

We estimate, for the US and other three OECD countries, the effects of government spending shocks on the CPI real exchange rate, the trade balance and their comovements with GDP and private consumption. We then decompose, via alternative methodologies, the (conditional) variations of the CPI real exchange rate into variations of (i) the traded goods real exchange rate, and (ii) the relative price of traded to non-traded goods. We reach three main conclusions. First, in all countries a rise in government spending induces a depreciation of the CPI real exchange rate and a trade balance deficit. In the US, however, the effect on the trade balance is small. Second, in all countries private consumption rises in response to a government spending shock, and therefore comoves positively with the real exchange rate. Third, both components of the CPI real exchange depreciate. The contribution of the relative price of non-traded goods is sizeable, and particularly so in the case in which traded goods prices are measured in terms of export and import prices. We argue that all these results stand in stark contrast with a baseline open-economy business cycle model augmented with non-traded goods.
2010
2010
Monacelli, Tommaso; Perotti, Roberto
File in questo prodotto:
File Dimensione Formato  
Perotti2.pdf

non disponibili

Tipologia: Pdf editoriale (Publisher's layout)
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 898.21 kB
Formato Adobe PDF
898.21 kB Adobe PDF   Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3715077
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 112
  • ???jsp.display-item.citation.isi??? 104
social impact