Publication type: Article in scientific journal
Type of review: Peer review (publication)
Title: Economic openness and fiscal multipliers
Authors: Riguzzi, Marco
Wegmüller, Philipp
DOI: 10.1080/10168737.2016.1204337
Published in: International Economic Journal
Volume(Issue): 31
Issue: 1
Pages: 1
Pages to: 35
Issue Date: 2017
Publisher / Ed. Institution: Routledge
ISSN: 1016-8737
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.
Fulltext version: Published version
License (according to publishing contract): Licence according to publishing contract
Departement: School of Management and Law
Organisational Unit: Winterthur Institute of Health Economics (WIG)
Appears in Collections:Publikationen School of Management and Law

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