Trade Flows and Fiscal Multipliers / Matteo Cacciatore, Nora Traum.

Format:

Book

Author/Creator:

Cacciatore, Matteo.

Contributor:

National Bureau of Economic Research.

Traum, Nora.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27652.

NBER working paper series no. w27652

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We present novel insights on the role of international trade following unanticipated government spending and income tax changes in a flexible exchange rate environment. In a simple two-country, two-good model, we show analytically that fiscal multipliers can be larger in economies more open to trade, even when fiscal expansions imply a trade deficit. Cross-country comovement can be positive or negative. Three factors determine how trade linkages affect fiscal multipliers: the relative import share of public and private goods, how the government finances its budget, and the currency invoicing of exports. A Bayesian prior-predictive analysis shows a quantitative international business-cycle model bears the same predictions. Estimating the model on Canadian and U.S. data, we find support for larger multipliers relative to a counterfactually closed economy and positive cross-country spillovers.

Notes:

Print version record

August 2020.