Real exchange rate and international spillover effects of US technology shocks

Abstract

The paper presents new empirical evidence on the international effects of surprise and anticipated technology shocks in the US. We employ the proxy-instrumental variable approach to identify structural vector autoregressions in a panel setting and empirically study the transmission of US technology innovations to the G7 countries. Both unanticipated and anticipated exogenous technology improvements lead to a strong and persistent real appreciation (from the point of view of the US), along with an expansionary effect on US macroeconomic aggregates, except for hours worked which initially decline. Internationally, there is a strong and precisely estimated positive spillover on foreign output, consumption, and hours worked in the case of surprise shocks, and a weaker but still mostly non-negative effect in the case of technology news shocks. We show that the empirical evidence is qualitatively compatible with the predictions of a New Keynesian international business cycle model with imperfect financial markets, traded and non-traded goods and imported intermediate inputs in production.