Effects of fiscal shocks in a globalised world by Alan Auerbach, Yuriy Gorodnichenko published by VOXEU (5/2015).
The impact of fiscal policy on exchange rates is of key interest to policymakers. This column argues that unexpected government spending instantly affects exchange rates. The finding, based on daily data reporting of the US Defence Department, may suggest that unexpected government spending has broader macroeconomic effects as well. The results, however, do not hold is low-frequency data are used instead.