US fiscal stimulus decreases output in rest of world – research
A helicopter drop policy could be the most effective co-ordinated effort
US fiscal policy interventions, like those during the pandemic, decrease economic output in the rest of the world, say researchers with the Bank of Canada. Output decreases because of the increase in term premiums and long-term interest rates as portfolios are rebalanced.
US fiscal expansions are contractionary for the rest of the world on net, say authors Sami Alpanda, Uluc Aysun and Serdar Kabaca in an article published on November 1. “US fiscal expansions are contractionary abroad,” they
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