GDP-Spillovers in Multi-Country Models
33 Pages Posted: 3 Jun 2011 Last revised: 22 Aug 2011
Date Written: May 5, 1998
Spillovers resulting from fiscal and monetary policy are compared and analysed in small static, small dynamic and large dynamic multi-country models. To compare the size of the spillovers, we consider simulations in which GDP for a certain number of years is held one percent above base in the country where the shock originates. The results indicate that spillovers are large in size. An important transmission mechanism in the contribution to foreign GDP is found to be the foreign real interest rate, contributions to foreign GDP generated through trade are found to be small. In empirical models with endogenous exchange and interest rates, it was found that under floating exchange rate regimes spillovers are much smaller than under pegged exchange rate regimes. Furthermore, we note that under floating exchange rate regimes, spillovers seem to be larger in small dynamic models than in large empirical models.
Keywords: Multi-Country Model, International Spillovers, Evaluation and Simulation
JEL Classification: C52, E62, F41
Suggested Citation: Suggested Citation