TY  - JOUR
AU  - Corsetti, Giancarlo
AU  - Müller, Gernot J
TI  - Multilateral Economic Cooperation and the International Transmission of Fiscal Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17708
PY  - 2011
Y2  - December 2011
DO  - 10.3386/w17708
UR  - http://www.nber.org/papers/w17708
L1  - http://www.nber.org/papers/w17708.pdf
N1  - Author contact info:
Giancarlo Corsetti
Faculty of Economics
Cambridge University
Sidgwick Avenue
CB3 9DD Cambridge, Cambs
United Kingdom
Tel: +44(0)1223335235
E-Mail: giancarlo.corsetti@gmail.com

Gernot Müller
University of Tuebingen and CEPR
Mohlstr. 36,
72074 Tuebingen,
Germany
E-Mail: gernot.mueller@uni-tuebingen.de
M1  - published as Giancarlo Corsetti, Gernot J. Müller. "Multilateral Economic Cooperation and the International Transmission of Fiscal Policy," in Robert C. Feenstra and Alan M. Taylor, editors, "Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century" University of Chicago Press (2014)

M3  - presented at "Globalization in an Age of Crisis", September 14-16, 2011
AB  - During the global financial crisis 2007-2009 fiscal policy was widely used as a stabilization tool. Policymakers allowed a large build-up of public debt resulting from both automatic and discretionary expansionary measures. At the same time, calls for policy coordination stressed that international spillovers of fiscal policy might be sizeable. We reconsider the case for fiscal coordination by providing new evidence on the cross-border effects of discretionary fiscal measures. We rely on a vector autoregression model as well as on a quantitative business cycle model. We find that i) large spillover effects cannot be ruled out and, in contrast to conventional wisdom, ii) financial factors rather than trade flows lie at the heart of the international transmission mechanism. We discuss the implications of these results for policy coordination when markets price sovereign default risk, and put pressure on governments for implementing budget consolidation measures.
ER  -