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The Impact on the Asia-Pacific Region of Fiscal Policy in the United States and Japan

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Abstract

This paper explores the macroeconomic consequences of changes in fiscal policy in the United States and Japan, for countries in the Asia-Pacific region. The basis of the study is the McKibbin-Sachs Global model that now includes models for Korea, Australia and Japan. It is shown that the response of global financial markets is important in determining the short run impact and the dynamics of adjustment of countries in the Asia-Pacific region when macroeconomic policies change in Japan and the United States. It is also shown that whether a policy is anticipated or not has important consequences for the adjustment process. Indeed in the short run GDP may rise or fall in response to a change in fiscal policy depending on the announcement effect of the policy change.

 

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