A Two-Sector General Equilibrium Model of a Small Open Economy

2004 ◽  
pp. 11-40
Author(s):  
Bharat R. Hazari ◽  
Pasquale M. Sgro
Keyword(s):  
General Equilibrium ◽  
Open Economy ◽  
Equilibrium Model ◽  
Small Open Economy ◽  
General Equilibrium 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.

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