Affiliation:
1. University of British Columbia, NBER & CEPR , Canada
2. Aix-Marseille Universite & CNRS , France
3. Peking University , China
Abstract
Abstract
This paper analyses the impact of fiscal spending shocks in a dynamic, multi-country model with international production networks. The response of real gross domestic product to a fiscal spending shock can be decomposed into a direct effect, income effect and price effect. The direct effect depends only on input-output linkages, while the price effect is zero in the aggregate. We apply this decomposition to the Eurozone, and find that fiscal spillovers from Germany and the core Eurozone countries can be large, and within the range of empirical estimates. Without international production networks, spillovers would be significantly smaller. In an empirical application, using the decomposition, we find results strongly consistent with the model.
Funder
Social Sciences and Humanities Research Council of Canada
National Natural Science Foundation of China
French National Research Agency
Publisher
Oxford University Press (OUP)
Subject
Economics and Econometrics
Reference75 articles.
1. Networks and the macroeconomy: An empirical exploration;Acemoglu,2015
2. Endogenous production networks;Acemoglu;Econometrica,2020
3. The network origins of aggregate fluctuations;Acemoglu;Econometrica,2012
4. Microeconomic origins of macroeconomic tail risks;Acemoglu;American Economic Review,2017
5. Universal gravity;Allen;Journal of Political Economy,2020