scholarly journals THE TRANSITIONAL DYNAMICS OF FISCAL POLICY IN SMALL OPEN ECONOMIES

2009 ◽  
Vol 14 (1) ◽  
pp. 1-28 ◽  
Author(s):  
Ben J. Heijdra ◽  
Jenny E. Ligthart
Keyword(s):  
Fiscal Policy ◽  
Open Economy ◽  
Monopolistic Competition ◽  
Infinite Horizon ◽  
Small Open Economy ◽  
Impulse Response Functions ◽  
Lump Sum ◽  
Long Run ◽  
Goods Market ◽  
Fiscal Shocks

We study the dynamic macroeconomic effects of fiscal shocks under lump-sum tax financing. To this end, we develop an intertemporal macroeconomic model for a small open economy, featuring monopolistic competition in the intermediate goods market, endogenous (intertemporal) labor supply, and finitely lived households. Fiscal shocks are shown to yield endogenously determined (dampened) cycles for a realistic calibration of the model. Impulse response functions of fiscal policy shocks in the finite-horizon model differ substantially from those resulting from an infinitely lived representative agent model. This can be explained by the presence of Ethier-productivity effects, which increase the size of long-run output multipliers to a greater extent in the infinite-horizon model.

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.

Monetary and fiscal policy effects in South African economy

2020 ◽  
Vol 11 (4) ◽  
pp. 625-638 ◽  
Author(s):  
Naser Yenus Nuru
Keyword(s):  
South Africa ◽  
Fiscal Policy ◽  
Open Economy ◽  
Empirical Studies ◽  
Small Open Economy ◽  
Empirical Literature ◽  
Impulse Response Functions ◽  
Content Type ◽  
Joint Effects ◽  
Monetary And Fiscal Policy

PurposeThe main purpose of this study is to see the macroeconomic effects of monetary and fiscal policy shocks in South Africa.Design/methodology/approachThe joint effects of monetary and fiscal policy are analyzed by applying short-run contemporaneous restrictions for the identification of shocks in an SVAR in order to derive impulse response functions. Hence, a general AB model of (Amisano and Giannini, 1997) identification scheme, which is not recursive, is employed in this study.FindingsThe author shows that monetary tightening leads to a fall in real economic activity and depreciates the exchange rate. And in regard to the fiscal policy, the author calculates an initial government spending multiplier of 0.20, which later peaks at 0.40. The tax multiplier is almost 0 on impact and statistically insignificant. However, the author finds evidence supporting the existence of accommodative stance between monetary policy and fiscal policy, which is important for economic and political decision-making.Originality/valueEmpirical studies that deal with the joint effects of monetary and fiscal policy for South Africa through the SVAR framework are quite limited. This paper, therefore, contributes to the empirical literature on the effects of monetary and fiscal policy in a small open economy like South Africa.

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.

A Dynamic Analysis of Child Labor with a Variable Rate of Discount: Some Policy Implications

2006 ◽  
Vol 5 (1) ◽  
Author(s):  
Satya P Das ◽  
Rajat Deb
Keyword(s):  
Discount Rate ◽  
Child Labor ◽  
Time Preference ◽  
Infinite Horizon ◽  
Policy Implications ◽  
Poverty Trap ◽  
Variable Rate ◽  
Lump Sum ◽  
Long Run ◽  
Short Run

AbstractThis paper analyzes the problem of child labor in an infinite-horizon dynamic model with a variable rate of time preference and credit constraints. The variability in the rate of time preference leads to the possibility of multiple steady states and a poverty trap. The paper considers the long-run and short-run effects of an array of policies like enrollment subsidy, improvement in primary education infrastructure, lump-sum subsidy, and variations in loan market parameters. We distinguish between policies that reduce child labor in the long run only in the presence of a variable discount rate and other policies which work whether or not the discount rate is variable. Credit-related policies belong to the former group. Policies that reduce child labor and increase family consumption in the long run may have an adverse effect of lowering consumption in the short run.

Risk Aversion and Unemployment in an Open Economy

2000 ◽  
Vol 49 (2) ◽  
Author(s):  
Pia Weiß
Keyword(s):  
Risk Aversion ◽  
Open Economy ◽  
Small Open Economy ◽  
Risk Behaviour ◽  
Terms Of Trade ◽  
Individual Risk ◽  
Risk Averse ◽  
Search Frictions ◽  
Long Run ◽  
The Impact

AbstractThe paper analyses the impact which risk aversion has on a small open economy characterised by search frictions on the labour market. It is shown that the long-run qualitative effects caused by a terms-of-trade shock are independent of individual risk behaviour. As far as quantitative aspects are concerned risk aversion always leads to higher equilibrium employment; however the increase in unemployment due to a price shock is the higher the more risk-averse individuals are.

scholarly journals Savers, Spenders and Fiscal Policy in a Small Open Economy

2007 ◽  
Vol 7 (1) ◽  
Author(s):  
Egil Matsen ◽  
Tommy Sveen ◽  
Ragnar Torvik
Keyword(s):  
Fiscal Policy ◽  
Open Economy ◽  
Small Open Economy

The effect of government spending innovations on the Ethiopian economy

2019 ◽  
Vol 11 (1) ◽  
pp. 109-121
Author(s):  
Hayelom Yrgaw Gereziher ◽  
Naser Yenus Nuru
Keyword(s):  
Open Economy ◽  
Government Spending ◽  
Small Open Economy ◽  
Recursive Identification ◽  
Impulse Response Functions ◽  
Size Of Government ◽  
Content Type ◽  
Identification Scheme ◽  
Real Gdp ◽  
Capital Spending

Purpose The purpose of this paper is to estimate the size of government spending components’ multipliers for the Ethiopian economy over the sample period of 2001Q1 up to 2017Q4. Design/methodology/approach The effects of government spending are analyzed by applying short-run contemporaneous restrictions for the identification of shocks in an SVAR in order to estimate multipliers for the small open economy. Accordingly, recursive identification scheme is used in this study. Findings From the impulse response functions, the authors found that aggregate government spending is less effective in stimulating the economy for the study period as evidenced by almost zero multipliers. This can be due to many structural and conjunctural factors that tend to lower the multiplier effects. At a disaggregate level, real GDP responds negatively to capital spending while its effect on recurrent spending is positive and insignificant on impact. The variation to real GDP is best explained by the variation in capital spending as compared to recurrent spending. Originality/value Though almost none in number, little research has been conducted in Ethiopia related to the effect of government spending shock on output. But this research deviates from the previous study by introducing a new methodology which is SVAR with cholesky decomposition. The previous study, however, used Bayesian VAR. Besides to that, using cholesky identification scheme, government spending is decomposed in to recurrent and capital spending to see the effect of government spending components on output and government spending multipliers are also computed both at an aggregate and disaggregate level.

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