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The New Open Economy Macroeconomics of Government Debt

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  • Ganelli, Giovanni

    (Trinity College Dublin)

Abstract

In this paper we introduce an overlapping generations structure of the Blanchard (1985) type in a New Open Economy Macroeconomics model. This allows us to study a wider range of fiscal shocks compared to the traditional Mundell-Fleming and to the baseline Redux (Obstfeld and Rogoff 1995, 1996) models. One important policy implication of our model is that the tax cut implemented in the US in 2001 might have contributed to the appreciation of the Dollar vis-a-vis the Euro. In contrast, the imposition of fiscal constraints such as the ``Golden Rule'' proposed by the UK government can have opposite exchange rate effects.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 83.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:83

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Web page: http://www.res.org.uk/society/annualconf.asp
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Keywords: Overlapping generations; new open economy macroeconomics; debt; tax cut;

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  1. Andrew Mountford & Harald Uhlig, 2005. "What are the Effects of Fiscal Policy Shocks?," SFB 649 Discussion Papers SFB649DP2005-039, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Ganelli, G., 2000. "Useful Government Spending, Direct Crowding Out and Fiscal Policy Interdependence," The Warwick Economics Research Paper Series (TWERPS) 547, University of Warwick, Department of Economics.
  3. Frenkel, Jacob & razin, assaf & Yuen, chi-wa, 1996. "Fiscal policies and growth in the world economy," MPRA Paper 22109, University Library of Munich, Germany.
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    • Philip R. Lane & Gian Maria Milesi-Ferretti, 2002. "Long-Term Capital Movements," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 73-136 National Bureau of Economic Research, Inc.
  7. Fatás, Antonio & Mihov, Ilian, 2001. "The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence," CEPR Discussion Papers 2760, C.E.P.R. Discussion Papers.
  8. Giovanni Ganelli, 2002. "Fiscal Policy Rules in an Overlapping Generations Model with Endogenous Labour Supply," Trinity Economics Papers 200215, Trinity College Dublin, Department of Economics.
  9. Calvo, Guillermo A & Obstfeld, Maurice, 1988. "Optimal Time-Consistent Fiscal Policy with Finite Lifetimes," Econometrica, Econometric Society, vol. 56(2), pages 411-32, March.
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  23. Benigno, Gianluca & Benigno, Pierpaolo, 2001. "Monetary Policy Rules and the Exchange Rate," CEPR Discussion Papers 2807, C.E.P.R. Discussion Papers.
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