US Fiscal Stimulus and Value of Dollar
DOI:
https://doi.org/10.33423/jabe.v24i1.5003Keywords:
business, economics, fiscal stimulus, stationarity, cointegration, VECM, short-run impact, long-run impact, exchanger rate, capital inflow, interest rate, etc.Abstract
Our study examines the impact of government stimulus spending on the US dollar’s exchange rate. We apply the VECM model on US data from 1980 to 2020 with US dollar’s exchange rate as the dependent variable and the quantity of domestic money supply, amount of domestic government purchases, quantity of money supplied by the foreign country (China), and the foreign country’s output as independent variables. Our study finds that, while the long-run impact of US fiscal stimulus spending on the dollar’s exchange rate is negative, it has no effect in the short run. Also, the coefficient associated with the errorcorrection term, ECT, is negative but insignificant at 5% significance level, which implies that any shortterm fluctuation in the US dollar’s exchange rate will not be adjusted toward its long-run value.
