Expansionary fiscal shocks and the trade deficit
By: Christopher J. Erceg, Luca Guerrieri, Christopher Gust.
Contributors: Guerrieri, Luca.; Gust, Christopher J.
Series: International finance discussion papers ;; no. 825; International finance discussion papers (Online) ;; no. 825.
Publisher: Federal Reserve Board
Published: 2005
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "In this paper, we use an open economy DGE model (SIGMA) to assess the quantitative effects of fiscal shocks on the trade balance in the United States.  We examine the effects of two alternative fiscal shocks: a rise in government consumption, and a reduction in the labor income tax rate.  Our salient finding is that a fiscal deficit has a relatively small effect on the U.S. trade balance, irrespective of whether the source is a spending increase or tax cut.  In our benchmark calibration, we find that a rise in the fiscal deficit of one percentage point of GDP induces the trade balance to deteriorate by less than 0.2 percentage point of GDP.  Noticeably larger effects are only likely to be elicited under implausibly high values of the short-run trade price elasticity"--Federal Reserve Board web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 2/17/2005.
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Mode of access: World Wide Web.