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Trans‐Tasman Transmission of Government Spending Shocks
Author(s) -
Arin K. Peren,
Koyuncu Murat,
Schumacher Christoph
Publication year - 2012
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.12000
Subject(s) - economics , impulse response , government spending , vector autoregression , business cycle , monetary economics , fiscal policy , shock (circulatory) , private consumption , impulse (physics) , macroeconomics , government expenditure , consumption (sociology) , econometrics , investment (military) , market economy , medicine , mathematical analysis , social science , physics , sociology , welfare , politics , political science , law , mathematics , quantum mechanics , public finance
This paper investigates the international transmission of fiscal shocks between two closely‐linked, open economies. We estimate impulse response functions using a semi‐structural vector auto regressive ( VAR ) model and quarterly data from A ustralia and N ew Z ealand for the period 1973:3–2008:4. We compare our empirical results with impulse response functions from a calibrated two‐country international real business cycle model with habit formation and adjustment costs to investment. We show that a positive shock to A ustralian government consumption leads to an increase in A ustralian output initially and then to a decline in the medium term, while the N ew Z ealand output is negatively affected both in the short and medium term. This result is in line with the recent literature that reports beggar‐thy‐neighbour effect of positive government spending shocks.