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Fiscal Policy in a Small Open Economy with Oil Sector and non-Ricardian Agents

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  • Andrés González

    ()

  • Martha Rosalba López Piñeros

    ()

  • Norberto Rodríguez

    ()

  • Santiago Téllez

    ()

Abstract

In this paper we develop a dynamic stochastic general equilibrium fiscal model for the Colombian economy. The model has three main components: the existence of non-Ricardian households, price and wage rigidities, and a fiscal authority that finances government spending partly with public debt. The model is calibrated to capture the empirical evidence on the macroeconomic effects of government spending and it is used to study the effect of an oil price shock under different fiscal policy rules. Our results show that fiscal multipliers in Colombia are positive in a way consistent with the evidence. Our analysis also shows that a structural fiscal rule delivers a better outcome in terms of macroeconomic volatility relative to a balanced budget rule or a countercyclical fiscal rule.

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Bibliographic Info

Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 010483.

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Length: 32
Date of creation: 17 Feb 2013
Date of revision:
Handle: RePEc:col:000094:010483

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Keywords: Fiscal multipliers; fiscal policy rules; non-Ricardian households; DSGE model.;

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  1. Morten O. Ravn & Stephanie Schmitt-Grohé & Martín Uribe, 2007. "Explaining the Effects of Government Spending Shocks on Consumption and the Real Exchange Rate," NBER Working Papers 13328, National Bureau of Economic Research, Inc.
  2. Aarón Garavito A. & Ana María Iregui & María Teresa Ramírez G., 2012. "Inversión Extranjera Directa en Colombia: Evolución reciente y marco normativo," BORRADORES DE ECONOMIA 009655, BANCO DE LA REPÚBLICA.
  3. Ignacio Lozano & Karen Rodríguez, . "Assessing the Macroeconomic Effects of Fiscal Policy in Colombia," Borradores de Economia 552, Banco de la Republica de Colombia.
  4. Franz Hamann & Ignacio Lozano & Luis Fernando Mejía, . "Sobre el impacto macroeconómico de los beneficios tributarios al capital," Borradores de Economia 668, Banco de la Republica de Colombia.
  5. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  6. Colciago, Andrea, 2005. "Rule of Thumb Consumers Meet Sticky Wages," MPRA Paper 3275, University Library of Munich, Germany, revised 27 Apr 2007.
  7. Leopoldo Fergusson, 2003. "Tributación, Crecimiento Y Bienestar: El Caso Colombiano(1970-1999)," DOCUMENTOS CEDE 003662, UNIVERSIDAD DE LOS ANDES-CEDE.
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