درک اثرات دینامیکی هزینه کرد دولت در تجارت خارجی

Using Vector Autoregressions on U.S. time series, the present paper documents the effects of fiscal policy on foreign trade: an increase in government spending significantly depreciates the nominal exchange rate, appreciates the terms of trade and increases net exports. Exposed to the same spending shock, a New Keynesian general equilibrium model is shown to match qualitatively the response of relative prices. The response of net exports, in contrast, depends on the intra- and intertemporal elasticities of substitution and the degree of home bias in private spending. An accommodating monetary policy dampens, but does not alter the response of net exports.

The present paper studies the dynamic effects of a temporary increase in government spending on foreign trade. Its aim is twofold. First, it seeks to establish empirically how the exchange rate, the terms of trade and the trade balance (net exports) respond to an exogenous increase in government spending. Second, it rationalizes these responses within a stochastic general equilibrium model which features price rigidities and thus allows for a potentially important role of monetary policy. Based on Vector Autoregressions (VAR), empirical investigations of the dynamic effects of fiscal policy in a closed economy context have recently become more numerous. Attempts have also been made to account for this evidence using different versions of stochastic general equilibrium models, e.g. Fatás and Mihov, 2001 and Burnside et al., 2004 and Galí et al. (2005). Little evidence, however, has been put forward regarding the dynamic effects of government spending on foreign trade. Exceptions are Kim and Roubini (2003) and Giuliodori and Beetsma (2004), who do not, however, explore their empirical findings within a formal theoretical framework. Canzoneri et al. (2003) also provide a VAR analysis of the effects of fiscal policy on foreign trade and, although they analyze their findings within a general equilibrium model, they make the restrictive assumption that trade is always balanced. From a policy perspective, the U.S. macroeconomic stance in the early 2000s provides a particular motivation to investigate the dynamic effects of fiscal policy on foreign trade in a loose monetary environment. It is often argued that the loose fiscal stance in the early 2000s was a major cause for the continuing deterioration of the U.S. trade balance, thus stimulating the global economy at the expense of increased global imbalances, see, e.g. International Monetary Fund (2004). At the same time an accommodating monetary policy stance is generally thought to increase net exports by inducing ‘expenditure switching’ towards domestically produced goods. Hence, the overall effect of the expansionary U.S. fiscal-monetary stance in the early 2000s on the U.S. trade balance appears to be unclear. Against this background, this paper takes up these issues both at an empirical and a theoretical level. The empirical analysis is based on a VAR on U.S. time series data for the post-Bretton-Woods period. Following Blanchard and Perotti (2002), the baseline specification identifies government spending shocks by assuming that government spending does not contemporaneously respond to the other variables included in the VAR. The main results of the empirical analysis, which are found to be robust across various specifications, can be summarized as follows: a temporary increase in government spending depreciates the nominal exchange rate, appreciates the terms of trade and increases net exports. The latter finding may appear surprising, given that a strand of the literature has established a positive relationship between fiscal and trade deficits on the basis of single equation techniques, e.g. Summers (1986) and Roubini (1988).1 More recently, however, Gruber and Kamin (2005) employing a similar methodology were not able to detect a significant effect of the fiscal balance on the current account. Moreover, Kim and Roubini's VAR study also finds that fiscal expansions tend to increase the current account. The theoretical analysis is based on a model that belongs to a recent class of stochastic general equilibrium models for open economies which also feature sticky prices, see, for example, Benigno and Benigno, 2003 and Chari et al., 2002 and Galí and Monacelli (2005). The model is formulated in discrete time and linearized around a non-stochastic steady state. In such a framework an exogenous increase in government spending generates dynamic effects comparable to those identified in the data by means of a VAR. The main results of the theoretical analysis are as follows. First, because of home bias in government spending, the terms of trade appreciate after an exogenous increase in government spending. Next, the relative size of the elasticities of intertemporal and intratemporal substitution, together with the degree of home bias in private spending, is key for the sign of the response of the trade balance. If the elasticity of intertemporal substitution is high relative to the elasticity of intratemporal substitution, net exports will increase after an increase in government spending if private spending is substantially home biased.2 Second, regarding the role of monetary policy, the sign of the response of the terms of trade and the trade balance is shown to be independent of the particular form of an interest feedback rule assumed to characterize monetary policy. However, monetary policy is found to be accommodative and thus to dampen the effect of the fiscal shock both on the terms of trade and the trade balance by depreciating the nominal exchange rate relative to the flexible price allocation. The remainder of the paper is organized as follows. In the next section, evidence on the dynamic effects of government spending is obtained by means of a VAR on U.S. time series data. Section 3 describes the theoretical model, while Section 4 provides some analytical insights into the transmission of fiscal shocks as well as a numerical solution of the model. Section 5 concludes.

This paper has tried to empirically establish the dynamic effects of an exogenous increase in government spending on the nominal exchange rate, the terms of trade and the trade balance. The main finding proves to be robust across various VAR specifications: the exchange rate depreciates, the terms of trade appreciate and the trade balance moves into surplus after an exogenous increase in government spending. The strong and significant response of the terms of trade provides a guideline for the theoretical exploration of the empirical findings. Specifically, I investigated whether a two-country two-good general equilibrium model with price rigidities can account for the evidence, and if so under what conditions. It turns out that, independently of the monetary stance during the transmission process, an exogenous increase in government spending increases the trade balance if, in the presence of home bias in private spending, the intertemporal elasticity of substitution of private spending is high relative to the intratemporal elasticity of substitution between the home and foreign good. The reason is as follows: under the assumption that government spending falls entirely on home goods, an increase in government spending induces an appreciation in the terms of trade such that home goods become more expensive relative to foreign goods. If private spending is home biased, a high intertemporal elasticity of substitution induces a fall in the level of private domestic relative to private foreign spending as a result of the terms of trade appreciation, while a low intratemporal elasticity of substitution induces only limited substitution from home to foreign goods. Hence, resources are transferred from home to foreign and net exports increase. Monetary policy is characterized by an interest rate feedback rule. It is found not to alter but to dampen the effect on net exports, because it accommodates the increase in government spending relative to the flexible price allocation. A loose monetary stance is also reflected in the depreciation of the nominal exchange rate relative to the flexible price allocation. The mechanism underlying the theoretical transmission of government spending shocks is broadly in line with the evidence obtained from the VAR. It should be noted, however, that the analysis has been limited to a qualitative account of the key features of the data. Naturally, the transmission process as apparent from the data displays richer dynamics relative to those generated by the theoretical model. In particular, private spending which the theoretical model predicts to fall immediately in response to a government spending shock, falls only after a considerable delay according to the empirical VAR model. From that point on it appears to be a key factor underlying the increase of the trade balance. The terms of trade, in contrast, respond immediately according to the empirical VAR model and the resulting revaluation of trade flows appears to be an important channel for the immediate increase of the trade balance, as predicted by the theoretical model. Against this background, it seems adequate to draw a tentative conclusion regarding the contribution of the U.S. macroeconomic policy stance to the trade deficit in the early 2000s. Contrary to widely held views, an exogenous increase in government spending may not necessarily have contributed to the U.S. trade deficit. On the other hand, a fairly accommodating monetary policy may generally have dampened the possible effects of government spending on the trade balance. Hence, this and earlier episodes in U.S. time series when high government spending and trade deficits occurred simultaneously appear not to be the result of discretionary changes in fiscal policy per se. An alternative explanation of these episodes may instead focus on (business cycle) factors which might endogenously generate a systematic co-movement of budget and trade deficits. Also, the U.S. fiscal expansion in the early 2000s was in large parts the result of tax cuts, which have not been investigated in the present paper. Finally, it may be instructive to establish more evidence using data for smaller countries, where government spending may have little impact on the terms of trade. Lane and Perotti (2003), for example, use a small country model and suggest that fiscal expansions induce a loss in competitiveness as costs increase while prices are fixed on world markets. In this scenario, a trade deficit rather than a surplus might be the effect of a fiscal expansion. Further investigations into these issues appear to be promising.