Title

Trans-Tasman Transmission of Government Spending Shocks

Document Type

Article

Source of Publication

Australian Economic Papers

Publication Date

12-1-2012

Abstract

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 Australia and New Zealand 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 Australian government consumption leads to an increase in Australian output initially and then to a decline in the medium term, while the New Zealand 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. © 2012 The Authors. Australian Economic Papers © 2012 Blackwell Publishing Ltd/University of Adelaide and Flinders University.

ISSN

0004-900X

Publisher

Wiley

Volume

51

Issue

4

First Page

167

Last Page

188

Disciplines

Business

Scopus ID

84870374965

Indexed in Scopus

yes

Open Access

no

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