This paper studies how the interaction between the monetary policy regime and the degree of home bias in public consumption affects the exchange‐rate response to fiscal shocks in a generalized version of the Redux model of Obstfeld and Rogoff ([M. Obstfeld, 1995]). We show that the joint...

Using panel structural VAR analysis and quarterly data from four industrialized countries, we document that an increase in government purchases leads to an expansion in output and private consumption, a deterioration in the trade balance, and a depreciation of the real exchange rate (i.e., a...