TY  - JOUR
AU  - Aizenman, Joshua
AU  - Jinjarak, Yothin
TI  - The Fiscal Stimulus of 2009-10: Trade Openness, Fiscal Space and Exchange Rate Adjustment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17427
PY  - 2011
Y2  - September 2011
DO  - 10.3386/w17427
UR  - http://www.nber.org/papers/w17427
L1  - http://www.nber.org/papers/w17427.pdf
N1  - Author contact info:
Joshua Aizenman
Economics and SIR
University of Southern California
University Park
Los Angeles, CA 90089-0043
Tel: 213-740-4066
E-Mail: aizenman@usc.edu

Yothin Jinjarak
School of Economics and Finance
Victoria University of Wellington
PO Box 600
23 Lambton Quay, Wellington
New Zealand
E-Mail: yothin.jinjarak@vuw.ac.nz
M1  - published as Joshua Aizenman, Yothin Jinjarak. "The Fiscal Stimulus of 2009-2010: Trade Openness, Fiscal Space, and Exchange Rate Adjustment," in Jeffrey Frankel and Christopher Pissarides, organizers, "NBER International Seminar on Macroeconomics 2011" University of Chicago Press (2012)

M3  - presented at "ISOM", June 17-18, 2011
AB  - This paper studies the cross-country variation of the fiscal stimulus and the exchange rate adjustment propagated by the global crisis of 2008-9, identifying the role of economic structure in accounting for the heterogeneity of response. We find that greater de facto fiscal space prior to the global crisis and lower trade openness were associated with a higher fiscal stimulus/GDP during 2009-2010 (where the de facto fiscal space is the inverse of the average tax-years it would take to repay the public debt). Lowering the 2006 public debt/average tax base from the level of low-income countries (5.94) down to the average level of the Euro minus the Euro-area peripheral countries (1.97), was associated with a larger crisis stimulus in 2009-11 of 2.78 GDP percentage points. Joint estimation of fiscal stimuli and exchange rate depreciations indicates that higher trade openness was associated with a smaller fiscal stimulus and a higher depreciation rate during the crisis. Overall, the results are in line with the predictions of the neo-Keynesian open-economy model.
ER  -