This paper studies how the interaction between the monetary policy regime and the degree of home bias in public consumption affects the exchange-rate response to fiscal shocks in dynamic open-economy models. Our analysis compares the classic Redux model of Obstfeld and Rogoff (1995) and a modern...

Using a representative panel of manufacturing firms, we estimate the response of job and hours worked to currency swings, showing that it depends primarily on firms’ exposure to foreign sales and their reliance on imported inputs. We also show that, for given international exposure, the...

This paper shows that the result implied by the Redux model of Obstfeld and Rogoff (1995) - that the exchange rate depreciates in response to balanced-budget fiscal expansions - is completely reversed once we account for two key features of modern New Open Economy Macroeconomics models: home...

We study the effects of expansionary fiscal shocks in a two-country DSGE model with perpetual youth. We consider two alternative financing regimes, monetary financing and debt financing, and find that a money-financed fiscal stimulus is more expansionary on output and inflation. We investigate...

Contrary to widespread empirical evidence, standard NOEM models imply that the real exchange rate appreciates following an increase in public spending. This paper introduces productive government purchases and shows that the real exchange rate can depreciate after a positive spending shock, thus...

Contrary to widespread empirical evidence, standard NOEM models imply that the real exchange rate appreciates following an increase in public spending. This paper introduces productive government purchases and shows that the real exchange rate can depreciate after a positive spending shock, thus...

We study the effects of expansionary fiscal shocks in a two-country DSGE model with perpetual youth. We consider two alternative financing regimes, monetary financing and debt financing, and find that a money-financed fiscal stimulus is more expansionary on output and inflation. We investigate...