S5: Student Replication on Fiscal Shocks in the Globalized World

SESSION 5: Student Replication

Presentation by Franziska Strunz (PhD student at the Universität der Bundeswehr in Munich, DE)

ARTICLE BEING REPLICATED:
Auerbach and Gorodnichenko (2016) “Effect of Fiscal Shocks in a Globalized World”, published in the IMF Economic Review (available here: https://link.springer.com/article/10.1057/imfer.2015.15). Also: data series extended with data from 2014 to 2022.

ABSTRACT:
"Although theoretical models consistently predict that government spending shocks should lead to appreciation of the domestic currency, empirical studies have regularly found depreciation. Using daily data on U.S. defense spending (announced and actual payments), the paper documents that the dollar immediately and strongly appreciates after announcements about future government spending. In contrast, actual payments lead to no discernible effect on the exchange rate. It examines the responses of other variables at the daily frequency and explores how the response of the exchange rate to fiscal shocks varies over the business cycle as well as at the zero lower bound and in normal times."

The replication progress will be presented by Franziska, we will discuss the results so far and how to continue.

For discussion please use the session's page on the ReplicationWiki.