The international effect of US government expenditure

The paper estimates a system of structural equations to determine the effect of US government expenditure on the business cycle of other OECD countries. The estimated coefficients from the system are used in a simulation exercise to compute the dollar value of the international multiplier of the US government expenditure. This multiplier turns out to be positive: an extra dollar of the US government expenditure increases foreign output by 7 cents on average. However, the size of the multiplier significantly differs across sub-samples of countries and over time.