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...

In this paper we reconsider the twin deficit hypothesis (that fiscal shocks generating budget deficits also worsen external trade) both from a theoretical point of view and by analyzing data for Australia, Canada, the UK and the US. First, we assess the joint dynamics of budget and trade...

type="main" xml:id="geer12020-abs-0001" <title type="main">Abstract</title> <p>To address concerns about the sustainability of public debt, most industrialized countries shifted towards fiscal austerity after 2010. A popular concern is that austerity is self-defeating, because fiscal multipliers can be large. Specifically, a...</p>