Government Spending Shocks in Open Economy VARs

We identify government spending news and surprise shocks using a novel identification
based on the Survey of Professional Forecasters. News shocks lead, through an increase of
the interest rate, to a real appreciation of US dollar and a worsening of the trade balance.
The opposite is found for the standard surprise shock which raises government spending on
impact: the currency depreciates and net exports improve. We reconcile the two conflicting results showing the different timing of the spending reversals associated with the two
shocks. The effects of the news shock on government spending are much more persistent
and the reversal occurs much later.