Short-run and long-run equilibrium for a small open economy with intermediate goods

1982 ◽  
Vol 13 (1-2) ◽  
pp. 143-161 ◽  
Author(s):  
Arthur J. Hosios
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
Intermediate Goods ◽  
Long Run ◽  
Short Run ◽  
Long Run Equilibrium

scholarly journals FISCAL AUSTERITY MEASURES: SPENDING CUTS VS. TAX INCREASES

2018 ◽  
Vol 22 (2) ◽  
pp. 501-540 ◽  
Author(s):  
Gerhard Glomm ◽  
Juergen Jung ◽  
Chung Tran
Keyword(s):  
Open Economy ◽  
Risk Premium ◽  
Small Open Economy ◽  
Welfare Effects ◽  
Trade Offs ◽  
Long Run ◽  
Welfare Losses ◽  
Wide Range ◽  
Short Run ◽  
Fiscal Austerity

We formulate an overlapping-generations model with household heterogeneity and productive and nonproductive government programs to study the macroeconomic and intergenerational welfare effects of risk premium shocks and government debt reductions. We demonstrate that in a small open economy with a high level of debt, a small increase in the risk premium of the interest rate leads to a substantial contraction in output and negative welfare effects. We then quantify the effects of reducing the debt-to-gross-domestic-product ratio using a wide range of fiscal austerity measures. Our results indicate trade-offs between short-run contractions and long-run expansions in aggregate output. In the short run, spending-based austerity reforms are worse than tax-based reforms in terms of lost income. However, in the long run, spending-based reforms produce higher output than tax-based reforms. In addition, welfare effects vary significantly across generations, skill groups, and working sectors. The current old and middle-aged generations experience welfare losses, whereas future generations are beneficiaries of the reforms.

scholarly journals Nonexistence of Harberger-Laursen-Metzler Effect with Endogenous Time Preference in an Imperfect Capital Market

2015 ◽  
Vol 2015 ◽  
pp. 1-10 ◽  
Author(s):  
Deng-Shan Wang ◽  
Miao Jin
Keyword(s):  
Discount Rate ◽  
Current Account ◽  
Open Economy ◽  
Capital Market ◽  
Small Open Economy ◽  
Stable State ◽  
Terms Of Trade ◽  
Stable Steady State ◽  
Long Run ◽  
Short Run

This paper investigates the spending and current-account effects of a permanent terms-of-trade change in a dynamic small open economy facing an imperfect world capital market, where the households’ subjective discount rate is a function of savings. Under the assumption that the bond holdings are measured in terms of home goods, it is shown that when the discount rate is a decreasing function of savings, there does not necessarily exist a stable state; however, when the discount rate is an increasing function of savings, a saddle-path stable steady state comes into existence and the Harberger-Laursen-Metzler effect does not exist unambiguously; that is, an unanticipated permanent terms-of-trade deterioration leads to a cut in aggregate expenditure and a current-account surplus. The short-run effects obtained by the technique by Judd (1985, 1987) and Zou (1997) are consistent with the results from the long-run analysis and diagrammatic analysis.

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.

HABIT FORMATION AND GOVERNMENT SPENDING IN A SMALL OPEN ECONOMY

2003 ◽  
Vol 7 (3) ◽  
pp. 407-423 ◽  
Author(s):  
Cem Karayalçin
Keyword(s):  
Fiscal Policy ◽  
General Equilibrium ◽  
Current Account ◽  
Open Economy ◽  
Equilibrium Model ◽  
Government Spending ◽  
Time Preference ◽  
Small Open Economy ◽  
Long Run ◽  
Fiscal Shocks

The paper studies the effects of an expansionary fiscal policy in a general equilibrium model of a small open economy. Households are assumed to possess habit-forming, endogenous rates of time preference. In response to fiscal shocks, the model generates cyclical endogenous persistence and procyclical time paths for consumption, employment, and investment, as well as a countercyclical path for the current account. Furthermore, fiscal shocks are shown to have positive long-run effects on output and negative long-run effects on consumption.

scholarly journals A Short Note on Discrimination and Favoritism in the Labor Market

2017 ◽  
Vol 17 (1) ◽  
Author(s):  
Nicolas Salamanca ◽  
Jan Feld
Keyword(s):  
Labor Market ◽  
Wage Differentials ◽  
Short Note ◽  
Market Forces ◽  
Long Run ◽  
Short Run ◽  
Relative Preferences ◽  
Long Run Equilibrium

AbstractWe extend Becker’s model of discrimination by allowing firms to have discriminatory and favoring preferences simultaneously. We draw the two-preference parallel for the marginal firm, illustrate the implications for wage differentials, and consider the implied long-run equilibrium. In the short-run, wage differentials depend on relative preferences. However, in the long-run, market forces drive out discriminatory but not favoring firms.

scholarly journals Investigating Gold Investment as an Inflationary Hedge

2018 ◽  
Vol 7 (1) ◽  
pp. 30-41 ◽  
Author(s):  
Narinder Pal Singh ◽  
Navneet Joshi
Keyword(s):  
Consumer Price Index ◽  
Wald Test ◽  
Indian Culture ◽  
Vector Error Correction ◽  
Fund Managers ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Portfolio Managers ◽  
Long Run Equilibrium

Gold and Indian culture have been sharing an age-old association. India is one of the top two consumers of gold. Gold is the most popular investment avenue because of its ability to provide liquidity. The average monthly price however has grown by 1,588 percent over the whole period from 1979 to 2017 (June). In this article, we intend to investigate gold as an investment to hedge against inflation. The sample period to study the relationship between gold and inflation is 2011–2017 (March). To analyze long-run equilibrium between gold and inflation (consumer price index [CPI]), Johansen’s cointegration approach has been used. The short- and long-run causality between gold and inflation has been studied using vector error correction model (VECM) and Wald test. The results of cointegration indicate that gold and CPI series are cointegrated and bear long-run equilibrium. Both VECM and Wald test results indicate that there is only long-run causality between CPI and gold prices. However, in short run these variables do not show any causality. Thus, we infer that gold investment can be used as hedge against Inflation. The findings of this research have got direct implications for retail investors, portfolio managers, treasury and fund managers, government, and commercial traders.

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