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Commodity markets and the international transmission of fiscal shocks

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  • Reinhart, Carmen

Abstract

The "engine of growth" argument holds that an economic expansion in a large country increases the growth of its trading partners. Growth in developing countries is routinely linked to growth patterns in the Industrial economies. This paper examines the role of commodity markets in transmitting disturbances internationally and finds that contrary to the implications of the "engine of growth" argument, a fiscal-induced expansion in a large commodity-importing country could either increase or decrease growth in the developing commodity-exporting country, and unambiguously reduces output in the second commodity-importing country.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13411.

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Date of creation: Dec 1988
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Handle: RePEc:pra:mprapa:13411

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Keywords: commodity prices fiscal policy trade exports;

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References

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  1. Paul R. Krugman, 1980. "Oil and the Dollar," NBER Working Papers 0554, National Bureau of Economic Research, Inc.
  2. Frenkel, Jacob A & Razin, Assaf, 1986. "The International Transmission and Effects of Fiscal Policies," American Economic Review, American Economic Association, vol. 76(2), pages 330-35, May.
  3. Maurice Obstfeld & Alan C. Stockman, 1983. "Exchange-Rate Dynamics," NBER Working Papers 1230, National Bureau of Economic Research, Inc.
  4. Mussa, Michael, 1982. "A Model of Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 74-104, February.
  5. Jeffrey Sachs & Charles Wyplosz, 1984. "Real Exchange Rate Effects of Fiscal Policy," NBER Working Papers 1255, National Bureau of Economic Research, Inc.
  6. Ronald E. Findlay & Carlos Alfredo Rodriguez, 1977. "Intermediate Imports and Macroeconomic Policy under Flexible Exchange Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 208-17, May.
  7. Maurice Obstfeld, 1980. "Intermediate Imports, the Terms of Trade, and the Dynamics of the Exchange Rate and Current Account," NBER Working Papers 0540, National Bureau of Economic Research, Inc.
  8. Lloyd A. Metzler, 1949. "Tariffs, the Terms of Trade, and the Distribution of National Income," Journal of Political Economy, University of Chicago Press, vol. 57, pages 1.
  9. Mohsin S. Khan & Peter J. Montiel, 1987. "Real Exchange Rate Dynamics in a Small, Primary-Exporting Country," IMF Staff Papers, Palgrave Macmillan, vol. 34(4), pages 681-710, December.
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Cited by:
  1. Carmen Reinhart, 1990. "Fiscal Policy, the Real Exchange Rate and Commodity Prices," IMF Working Papers 90/91, International Monetary Fund.
  2. Reinhart, Carmen, 1990. "Fiscal policy, the real exchange rate and commodity prices: A global framework," MPRA Paper 14102, University Library of Munich, Germany.

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