|Title:||Economic openness and fiscal multipliers|
|Authors :||Riguzzi, Marco|
|Published in :||International Economic Journal|
|Publisher / Ed. Institution :||Routledge|
|License (according to publishing contract) :||Licence according to publishing contract|
|Type of review:||Peer review (Publication)|
|Subjects :||Exchange rate flexibility; Openness to trade; Capital mobility; Fiscal multiplier|
|Subject (DDC) :||330: Economics|
|Abstract:||Recent empirical findings attribute a central role to the degree of economic openness to determine the size of the fiscal multiplier. See, for instance, Ilzetzki et al. (2013) [How big (small?) are fiscal multipliers? Journal of Monetary Economics, 60(2), 239–254]. However, traditional macroeconomic models have difficulties to account for this evidence. By introducing ‘deep-habit’ formation into a New Keynesian small open economy model, this paper provides a theoretical framework which is able to attest for the new empirical evidence. Deep habits give rise to counter-cyclical firm markups, which are crucial to generate effects of openness on the fiscal multiplier as found in the data. 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 between measures of economic openness and the fiscal multiplier.|
|Departement:||School of Management and Law|
|Organisational Unit:||Winterthur Institute of Health Economics (WIG)|
|Publication type:||Article in scientific Journal|
|Appears in Collections:||Publikationen School of Management and Law|
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