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Fiscal Shocks and The Sectoral Composition of Output

Agustín S. Bénétrix, IIIS, Trinity College Dublin. Philip R. Lane, IIIS, Trinity College Dublin and CEPR

Abstract

We study the impact of shocks to different types of government spending on the composition
of sectoral output for a panel of EMU member countries. We find that fiscal shocks
lead to an increase in the relative size of the nontraded sector. There is typically no significant
impact on the level of production in the tradables sector but the level of imports
increases and the level of exports declines in most cases. Overall, the results show that fiscal
shocks matter not only for aggregate variables but also for the sectoral composition of
output.

JEL Classification: E24; E62.
Keywords: government spending shocks; tradables; nontradables; European Monetary Union;
panel VAR.


Last updated 28 August 2014 by IIIS (Email).