Fiscal Spillovers through Informal Financial Channels

TL;DR

This paper investigates how US fiscal stimulus checks caused temporary increases in cross-border cryptocurrency flows, revealing modest fiscal spillovers through informal financial channels with an upper bound of 2.52%.

Contribution

It introduces a novel method combining granular crypto transaction data and an algorithm to measure fiscal spillovers via informal channels.

Findings

Cryptocurrency outflows increased sharply but temporarily after US stimulus.

Fiscal spillover through crypto channels is estimated to be at most 2.52%.

Remittance-based spillovers are likely modest in size.

Abstract

This paper examines fiscal policy spillovers through informal international financial channels, using the US stimulus checks as a positive, sudden, and direct fiscal shock. I utilize granular, transaction-level cryptocurrency data combined with an algorithm to probabilistically identify cross-border "crypto vehicle" transactions to construct bilateral cryptocurrency flows between countries. Using a difference-in-differences strategy, I compare cryptocurrency outflows between the US and other high-income countries and find a sharp but temporary increase in cryptocurrency outflows as a result of the direct stimulus. I quantify the fiscal spillover relative to expenditure and place an upper bound of 2.52% through this channel. This implies that fiscal spillovers through remittance channels are likely modest in size.