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Terms-of-Trade Disturbances and Fiscal Policy in a Small Open Economy

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  • Macklem, R Tiff
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    Abstract

    This paper examines the dynamic and steady-state effects of shifts in the terms of trade and the level of government debt in a small open economy. The study is based on a simulation model that is loosely calibrated to the Canadian economy. There are three goods in the model: nontradables, importables, and exportables. Consumers optimize over their expected lifetime and do not care about the well-being of future generations, so Ricardian equivalence does not hold. Profit-maximizing firms use inputs of capital, labor, and an intermediate good and face costly adjustment of capital. Copyright 1993 by Royal Economic Society.

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    Bibliographic Info

    Article provided by Royal Economic Society in its journal The Economic Journal.

    Volume (Year): 103 (1993)
    Issue (Month): 419 (July)
    Pages: 916-36

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    Handle: RePEc:ecj:econjl:v:103:y:1993:i:419:p:916-36

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    Cited by:
    1. William Scarth, 1999. "Alternatives for Raising Living Standards," Social and Economic Dimensions of an Aging Population Research Papers 5, McMaster University.
    2. Dudley, L., 1980. "Macroeconomic Interdependence and the Terms of Trade," Cahiers de recherche 8014, Universite de Montreal, Departement de sciences economiques.
    3. William Scarth, 1999. "Alternatives for Raising Living Standards," Quantitative Studies in Economics and Population Research Reports 344, McMaster University.
    4. Boileau, Martin, 1999. "Trade in capital goods and the volatility of net exports and the terms of trade," Journal of International Economics, Elsevier, vol. 48(2), pages 347-365, August.
    5. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," NBER Working Papers 4493, National Bureau of Economic Research, Inc.
    6. O Okiti, 2003. "A Dynamic General Equilibrium Model with Terms of Trade Shocks: A Small Open Economy Case," The School of Economics Discussion Paper Series 0333, Economics, The University of Manchester.
    7. Tiff Macklem & David Rose & Robert Tetlow, . "GOVERNMENT DEBT AND DEFICITS IN CANADA: A Macro Simulation Analysis," Working Papers 95-4, Bank of Canada.
    8. Serven, Luis, 1999. "Terms-of-trade shocks and optimal investment: another look at the Laursen-Metzler effect," Journal of International Money and Finance, Elsevier, vol. 18(3), pages 337-365.
    9. Patricia Gómez-González & Daniel Rees, 2013. "Stochastic Terms of Trade Volatility in Small Open Economies," RBA Research Discussion Papers rdp2013-10, Reserve Bank of Australia.
    10. Kalulumia, Pene & Nyankiye, Francine, 2000. "Labor Adjustment Costs, Macroeconomic Shocks and Real Business Cycles in a Small Open Economy," Journal of Macroeconomics, Elsevier, vol. 22(4), pages 671-694, October.
    11. AKITOBY, Bernardin, 1997. "Termes de l'échange endogènes et cycles économiques réels : une application à la Côte-d'Ivoire," Cahiers de recherche 9701, Universite de Montreal, Departement de sciences economiques.

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