The Effects of Government Spending on Real Exchange Rates: Evidence from Military Spending Panel Data

Using panel data on military spending for 125 countries, we document new facts about the effects of changes in government purchases on the real exchange rate, consumption, and current accounts in both advanced and developing countries. While an increase in government purchases causes real exchange rates to appreciate and increases consumption significantly in developing countries, it causes real exchange rates to depreciate and decreases consumption in advanced countries. The current account deteriorates in both groups of countries. These findings are not consistent with standard international business-cycle models. We investigate whether the difference between advanced economies and developing countries in the responses of real exchange rates to spending shocks can be explained by alternative hypotheses

The European Debt Crisis and Fiscal Reaction Functions in Europe 2000-2012

After the global financial crisis, some governments in the EU experienced serious debt financing problems, while others were less affected. This paper seeks to shed light on the divergent fiscal performance by assessing the fiscal conduct in the EU countries before and after the outbreak of the crisis. Fiscal reaction functions of the primary balance are estimated for different groups of EU countries using quarterly data for the pre-crisis period 2001-2008 and for the post-crisis period 2009-2012. The pre-crisis estimations reveal some differences in persistence and cyclical reaction between different groups of countries, but generally little feedback from the debt stock to the primary balance. The countries that eventually developed fiscal problems do not stand out. The post-crisis estimations show less counter-cyclicality and much more feedback from the debt stock, and these reactions are particularly pronounced for the countries with severe fiscal problems

Planned Fiscal Consolidations and Growth Forecast Errors -- New Panel Evidence on Fiscal Multipliers

This paper analyzes the effect of planned fiscal consolidation on GDP growth forecast errors from the years 2010-2013 using cross section analyses and fixed effects estimations. Our main findings are that fiscal multipliers have been underestimated in most instances for the year 2011 while we find little to no evidence for the years 2010 and especially the latter years 2012/13. Since the underestimation of fiscal multipliers seems to have decreased over time, it may indicate learning effects of forecasters. However, the implications for fiscal policy should be considered with caution as a false forecast of fiscal multipliers does not confirm that austerity is the wrong fiscal approach but only suggests a too optimistic assessment of fiscal multipliers for the year 2011.Diese Arbeit analysiert den Effekt geplanter fiskalischer Konsolidierungen auf den Prognosefehler des BIP-Wachstums für die Jahre 2010-2013 mittels Querschnittsanalysen und Fixed Effects Modellen. Unsere Ergebnisse zeigen, dass fiskalische Multiplikatoren im Jahr 2011 in den meisten Fällen unterschätzt wurden, während für das Jahr 2010 und speziell die späteren Jahre 2012 und 2013 wenig bis gar kein Anzeichen einer Unterschätzung zu finden ist. Die Unterschätzung fiskalischer Multiplikatoren nimmt mit der Zeit ab, was ein Zeichen für Lerneffekte bei der Prognose sein könnte. Die Implikationen für die Fiskalpolitik sollte allerdings vorsichtig betrachtet werden, da ein falscher fiskalischer Multiplikator nicht impliziert, dass Austerität das falsche haushaltspolitische Vorgehen ist. Es ist lediglich eine zu positive Einschätzung fiskalischer Multiplikatoren für das Jahr 2011 festzustellen

Government Spending Multipliers in Resource-Rich Developing Countries

This paper estimates government spending multiplier for natural resource-rich low-income countries (LICs). Our estimates suggest an absence of natural resource curse in government spending multiplier. In the short run, the government spending multiplier is around 0.7 for natural resource-rich LICs and 0.43 for all LICs. The government spending has a permanent impact on the real economic activity in resource-rich countries while having a transitory long-run impact in other countries