Denys Yohana Mora Herrera

The objective of this research is to study the fiscal policy interdependence between Colombia and United States. More specifically this paper analyze the long run Spillover effect of the United States fiscal policy over the Colombian aggregate macroeconomic variables as consumption, output, terms of trade, real money holdings, and domestic prices in quarterly term from 1980:Q1 to 2011:Q3. The estimated theoretical model proposed by Corsetti and Pesenti (2001) through SVARX (Structural Vector Auto-Regressive with exogenous variables) indicate the following results: i) A temporary shock in the fiscal policy through a once for all increase in government expenditure do not cause permanent effect of the aggregate macroeconomics of Colombia; ii) A permanent shock through a continuous increase in government expenditure over the long run in United States generates a negative impact in the aggregate macroeconomics of Colombia causing what is known as “Beggar-thyneighbor” policy. In sum, Colombian macroeconomic policy makers must take into account the fiscal policy being done in United States in order to avoid negative effect over output, consumption and terms of trade.