Economic Openness and Fiscal Multipliers

Riguzzi, Marco (September 2014). Economic Openness and Fiscal Multipliers (Discussion Papers 14-06). Bern: Department of Economics

Preview

Text dp1406.pdf - Published Version Available under License Creative Commons: Attribution (CC-BY). Download (1MB) | Preview

This essay examines the implications of openness to trade, capital mobility, and exchange rate flexibility for the fiscal multiplier. It presents a New Open Economy Macroeconomics model which is extended with the formation of ‘deep habits’ by individual households. Hereby, an inter-temporal substitution effect is constituted, which causes monopolistically competitive producers to move their markups counter-cyclically and generates a positive fiscal multiplier of private consumption. The main outcome is a mechanism elaborating that both openness to trade and exchange rate flexibility limit the fiscal multiplier in equilibrium, and that capital mobility increases the fiscal multiplier in the short run. This dynamic model differs in its implications from a static model, such as the Mundell-Fleming model, and it is consistent with recent empirical findings.

Interest & Impact

Downloads

123 since deposited on 18 Dec 2020
16 in the past 12 months

Citations

5 Citations in Web of Science ®
6 Citations in Scopus

Search

in Google Scholar™

Services

Actions (login required)

Edit item

Actions (login required)

Edit item