Arbeitspapier

Economic openness and fiscal multipliers

Recent empirical findings attribute a central role to the degree of economic openness for determining the size of the fiscal multiplier. However, traditional macroeconomic models have difficulties in accounting for this evidence. It is the purpose of this paper to provide a theoretical framework which is able to attest for the new empirical evidence. To this end, we introduce the formation of "deep habits" into a New Keynesian small open economy model and give an active role to monetary policy. The presence of counter-cyclical firm markups is a crucial ingredient to generating a fiscal multiplier of empirically consistent size which is influenced by openness. We study three dimensions of economic openness: Exchange rate flexibility, trade openness and capital mobility. In line with the empirical findings, we report a negative relationship with the fiscal multiplier.

Language
Englisch

Bibliographic citation
Series: Discussion Papers ; No. 15-04

Classification
Wirtschaft
General Aggregative Models: Keynes; Keynesian; Post-Keynesian
Fiscal Policy
Subject
fiscal multiplier
exchange rate flexibility
openness to trade
capital mobility

Event
Geistige Schöpfung
(who)
Riguzzi, Marco
Wegmüller, Philipp
Event
Veröffentlichung
(who)
University of Bern, Department of Economics
(where)
Bern
(when)
2015

Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Riguzzi, Marco
  • Wegmüller, Philipp
  • University of Bern, Department of Economics

Time of origin

  • 2015

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