Fiscal policy efficiency and coordination: The New Open Economy Macroeconomics Approach
AbstractThe paper offers a survey of recent research on fiscal policy in both deterministic and stochastic models of the New Open Economy Macroeconomics (NOEM) initiated by Obstfeld and Rogoff (1995, 2002b). The survey includes a comparison of the implications of the deterministic benchmark model to the empirical evidence obtained in recent studies. It provides a detailed discussion of the recent extensions induced by the gap between theoretical and empirical implications. These extensions revise the traditionally studied aspects of fiscal issues such as the transmission channels of fiscal policy by introducing production specialization at the international level or by diversifying the pricing decisions of firms. They also cover current economic issues such as the effect of financial globalization on fiscal policy efficiency and the implication of a reduction in public employment in order to cut taxes. After presenting the basic features of a benchmark stochastic NOEM model for fiscal policy, the paper discusses the recent developments the gains from international fiscal policy cooperation with respect to gains from fiscal stabilization.
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Bibliographic InfoPaper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2010-18.
Date of creation: 2010
Date of revision:
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New Open Economy Macroeconomics; fiscal policy; stochastic and deterministic general equilibrium models.;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-24 (All new papers)
- NEP-CBA-2010-07-24 (Central Banking)
- NEP-MAC-2010-07-24 (Macroeconomics)
- NEP-OPM-2010-07-24 (Open Economy Macroeconomic)
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