How Do Fiscal and Technology Shocks Affect Real Exchange Rates? New Evidence for the United States

Posted: 18 Jul 2008

See all articles by Zeno Enders

Zeno Enders

University of Heidelberg

Gernot J. Müller

University of Tuebingen - Department of Economics

Almuth Scholl

Goethe University Frankfurt

Date Written: July 18, 2008

Abstract

Using vector autoregressions on U.S. time series relative to an aggregate of industrialized countries, this paper provides new evidence on the dynamic effects of government spending and technology shocks on the real exchange rate and the terms of trade. To achieve identification, we derive robust restrictions on the sign of several impulse responses from a two-country general equilibrium model. We find that both the real exchange rate and the terms of trade - whose responses are left unrestricted - depreciate in response to expansionary government spending shocks and appreciate in response to positive technology shocks.

Keywords: Real Exchange Rate, Terms of Trade, International Transmission Mechanism, Government Spending Shocks, Technology Shocks, VAR, Sign Restrictions

JEL Classification: F41, F42, E32

Suggested Citation

Enders, Zeno and Müller, Gernot J. and Scholl, Almuth, How Do Fiscal and Technology Shocks Affect Real Exchange Rates? New Evidence for the United States (July 18, 2008). CFS Working Paper No. 2008/22. Available at SSRN: https://ssrn.com/abstract=1162724

Zeno Enders (Contact Author)

University of Heidelberg ( email )

Gernot J. Müller

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

Almuth Scholl

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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