Title: Economic openness and fiscal multipliers
Authors : Riguzzi, Marco
Wegmüller, Philipp
Published in : International Economic Journal
Volume(Issue) : 31
Issue : 1
Pages : 1
Pages to: 35
Publisher / Ed. Institution : Routledge
Issue Date: 2017
License (according to publishing contract) : Licence according to publishing contract
Type of review: Peer review (Publication)
Language : English
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
DOI : 10.1080/10168737.2016.1204337
ISSN: 1016-8737
URI: https://digitalcollection.zhaw.ch/handle/11475/8986
Appears in Collections:Publikationen School of Management and Law

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