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Macroeconomic policy transmission and international interdependence: A SVAR application to Brazil and US

Author

Listed:
  • Maria Helena Ambrosio Dias

    (State University of Maringá (PCE/UEM), Brazil)

  • Joilson Dias

    (State University of Maringá (PCE/UEM), Brazil)

Abstract

Economic policy transmission between trade partners has been analyzed over different contexts in the literature. Depending on real or nominal frictions, the results indicate possible beggar-thy-neighbor effects for policies, given international trade, and need for coordinating policies. The baseline model is Corsetti and Pesenti (2001) of macroeconomic interdependence. The theoretical proposition suggests that a no anticipated economic policy of exchange rate depreciation creates a beggar-thyself effect. Yet, many economies have engaged in this policy to enhance exports and improve welfare. Here, fiscal policy transmissions over Brazilian economic aggregates are investigated, considering Brazil as home and US as foreign country. The problem is specified in a Structural VAR (Vector Autoregression) model, taking Granger causality tests and Impulse Response analysis as econometric applications. The results indicate that expansionary fiscal policy in US has a beggar-thy-neighbor effect for the Brazilian economy in the long-run. The policy transmission mechanism relies on the terms of trade. In addition, real money balances are affected by foreign fiscal policy, affecting the efficiency of domestic monetary policy.

Suggested Citation

  • Maria Helena Ambrosio Dias & Joilson Dias, 2013. "Macroeconomic policy transmission and international interdependence: A SVAR application to Brazil and US," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 14(2), pages 27-45.
    • Handle: RePEc:anp:econom:v:14:y:2013:i:2:27_45
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    Cited by:

    1. Ogunlesi, Ayodeji, 2018. "Agricultural Productivity, Fiscal and Trade Policies Nexus in Sub-Saharan Africa: A Panel Structural Vector Error Correction Model Analysis," MPRA Paper 90202, University Library of Munich, Germany.

    More about this item

    Keywords

    Policy transmission; Fiscal policy; Beggar-thy-neighbor; SVAR;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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