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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. Cavallo, Michele & Ghironi, Fabio, 2002. "Net foreign assets and the exchange rate: Redux revived," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 1057-1097, July.
  2. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers 1131, C.E.P.R. Discussion Papers.
  3. Ganelli, Giovanni, 2003. "Useful government spending, direct crowding-out and fiscal policy interdependence," Journal of International Money and Finance, Elsevier, vol. 22(1), pages 87-103, February.
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  7. Lane, P.R. & Ganelli, G., 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," CEG Working Papers 20026, Trinity College Dublin, Department of Economics.
  8. 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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  10. 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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  12. Philip R. Lane & Gian Milesi-Ferretti, 2001. "Long-Term Capital Movements," NBER Working Papers 8366, National Bureau of Economic Research, Inc.
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  17. Bergsten, C. Fred, 2002. "Can the United States afford the tax cuts of 2001?," Journal of Policy Modeling, Elsevier, vol. 24(4), pages 373-380, July.
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