Government Investment Programmes in the Open-Economy Case

2017 ◽  
pp. 83-120
Author(s):  
Mario Baldassarri
Keyword(s):  
Open Economy ◽  
Government Investment

Government investment in a small open economy

2009 ◽  
Vol 59 (2) ◽  
pp. 119-145 ◽  
Author(s):  
K. Major ◽  
K. Szilágyi
Keyword(s):  
Open Economy ◽  
Government Spending ◽  
Small Open Economy ◽  
Infrastructure Investment ◽  
Development Programs ◽  
Public Infrastructure ◽  
Government Investment ◽  
Positive Externalities ◽  
Long Run ◽  
Lively Debate

In this article the effects of government infrastructure investment in a small open economy environment are analysed. Apart from enhancing the country’s output directly, government spending on capital — modelled here as development of public infrastructure — creates positive externalities in the production process of the private sector. Short- and long-run effects of ambitious development programs, depending on the source of financing (transfers or loans from abroad), are addressed. The empirical relevance of the quantitative conclusions to be derived from the present stylised form of the model is admittedly limited. However, the qualitative conclusions can add some new insights and contribute to the lively debate on the expected effects of government investments and EU transfers on macroeconomic development.

Financing government investment and its implications for public capital: A small open economy perspective

2020 ◽  
Vol 93 ◽  
pp. 620-641
Author(s):  
Rónán Hickey ◽  
Matija Lozej ◽  
Diarmaid Smyth
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
Public Capital ◽  
Government Investment

The effects of government spending shocks on real exchange rate in Ethiopia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hiluf Techane Gidey ◽  
Naser Yenus Nuru
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Government Spending ◽  
Small Open Economy ◽  
Government Investment ◽  
Government Consumption ◽  
Content Type ◽  
Vector Autoregressive ◽  
Spending Shocks

PurposeGovernment spending has inconclusive effect on real exchange rate. From the very beginning neoclassical economists argued that a rise in government spending brings depreciation in real exchange rate while neo-Keynesians claimed that government spending appreciates real exchange rate. Hence, the main purpose of this paper is to examine the effect of government spending shock and its components' shocks, namely government consumption and government investment on real exchange rate over the period 2001Q1–2016Q1 for Ethiopia.Design/methodology/approachTo examine the effects of government spending shocks on real exchange rate, Jordà's (2005) local projection method is employed in this study. The exogenous shocks, however, are identified recursively in a vector autoregressive model.FindingsThe impulse responses show that government spending shock leads to a statistically significant appreciation of real exchange rate in Ethiopia. This evidence supports the neo-Keynesian school of thought who predicts an appreciation of real exchange rate from a rise in government spending. While government investment shock depreciates real exchange rate on impact insignificantly, government consumption shock appreciates real exchange rate in this small open economy.Originality/valueThis research contributes to the scarce literature on the effect of fiscal policy shock on real exchange rate in small open economies like Ethiopia.

scholarly journals Ten Years Later: Lessons for DSGE Builders and Czech Policy Makers

2019 ◽  
Vol 19 (3) ◽  
pp. 159-174
Author(s):  
Aleš Michl
Keyword(s):  
Czech Republic ◽  
Fiscal Policy ◽  
Lower Bound ◽  
Interest Rates ◽  
Open Economy ◽  
Zero Lower Bound ◽  
Government Investment ◽  
The Czech Republic ◽  
Equilibrium Approach ◽  
Dynamic Stochastic

Abstract We show an example of a small open economy – the Czech Republic – where the fiscal restriction was put in place between 2010 and 2013 in a negative output gap and zero lower bound on nominal interest rates. According to our results, such fiscal policy seems to have been mistaken, as the restriction may apparently have caused a second recession in the Czech Republic in 2012/2013 (after the global recession in 2008/2009). Instead of the dynamic stochastic general equilibrium approach (DSGE), we applied a tractable static deterministic partial equilibrium approach using the IS-LM framework. We derived mathematically from the IS-LM model that expansionary fiscal policy acting via higher government investment can be an appropriate tool for reacting to a crisis in the very short run when interest rates hit the zero lower bound. Expansionary fiscal policy after the 2008/2009 crisis would probably have led to faster stabilisation of the Czech economy. We simulate a potential increase in government investment of 8% yearly between 2011 and 2013. This would have added 0.4 pp to GDP growth and increased the inflation rate by about 0.5 pp. Hence, the inflation outlook in 2013 would not have been negative and would consequently have led to less pressure for monetary policy expansion using unconventional interventions against the Czech koruna.

SHOULD THE PRIVATE SECTOR PROVIDE PUBLIC CAPITAL?

2007 ◽  
Vol 11 (3) ◽  
pp. 318-346
Author(s):  
SANTANU CHATTERJEE
Keyword(s):  
Open Economy ◽  
Public Capital ◽  
Borrowing Constraints ◽  
International Capital ◽  
Standard Assumption ◽  
Production Externalities ◽  
International Capital Markets ◽  
Private Provision ◽  
Large Production ◽  
Government Provision

The choice between private and government provision of a productive public good like infrastructure (public capital) is examined in the context of an endogenously growing open economy. The accumulation of public capital need not require government provision, in contrast to the standard assumption in the literature. Even with an efficient government, the relative costs and benefits of government and private provision depend crucially on the economy's underlying structural conditions and borrowing constraints in international capital markets. Countries with limited substitution possibilities and large production externalities may benefit from governments encouraging private provision of public capital through targeted investment subsidies. By contrast, countries with flexible substitution possibilities and relatively smaller externalities may benefit either from governments directly providing public capital or from regulation of private providers. The transitional dynamics also are shown to depend on the underlying elasticity of substitution and the size of the production externality.

The long-run stability of a small, open economy under crawling peg regime

2002 ◽  
Vol 52 (1) ◽  
pp. 57-78
Author(s):  
S. Çiftçioğlu
Keyword(s):  
Exchange Rate ◽  
Open Economy ◽  
Risk Premium ◽  
Small Open Economy ◽  
Exchange Rate Policy ◽  
Price Stability ◽  
Output Stability ◽  
Long Run ◽  
The Exchange Rate ◽  
The Impact

The paper analyses the long-run (steady-state) output and price stability of a small, open economy which adopts a “crawling-peg” type of exchange-rate regime in the presence of various kinds of random shocks. Analytical and simulation results suggest that with the exception of money demand shocks, an exchange rate policy which involves a relatively higher rate of indexation of the exchange rate to price level is likely to lead to the worsening of price stability for all types of shocks. On the other hand, the impact of adopting such a policy on output stability depends on the type of the shock; for policy shocks to the exchange rate and shocks to output demand, output stability is worsened whereas for the shocks to risk premium of domestic assets, supply price of domestic output and the wage rate, better output stability is achieved in the long run.

Economic Performance and Public Finance in Kenya, 1960-2010

2018 ◽  
Vol 47 (2) ◽  
Author(s):  
Kempe Ronald Hope
Keyword(s):  
Public Finance ◽  
Economic Performance ◽  
Emerging Economy ◽  
The Other ◽  
Government Investment ◽  
The Past ◽  
Other Hand ◽  
Private Savings ◽  
Per Capita ◽  
Real Growth

Countries with positive per capita real growth are characterised by positive national savings—including government savings, increases in government investment, and strong increases in private savings and investment. On the other hand, countries with negative per capita real growth tend to be characterised by declines in savings and investment. During the past several decades, Kenya’s emerging economy has undergone many changes and economic performance has been epitomised by periods of stability, decline, or unevenness. This article discusses and analyses the record of economic performance and public finance in Kenya during the period 1960‒2010, as well as policies and other factors that have influenced that record in this emerging economy. 

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