In static general equilibrium models considering imperfectly competitive goods markets, the effectiveness of fiscal policy to stir output is shown to be greater than in the walrasian case. However, labour is the only input in these models. Here, I develop a simple intertemporal model allowing us to study the steady-state role of optimal capital stock in the fiscal policy transmission mechanism. I demonstrate the results depend strongly on the set of parameter values chosen and on the output definition. Using plausible calibrations the multiplier is larger in the walrasian case for small initial government purchases, and smaller for intermediate values.
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Paper provided by Department of Economics, University of York in its series Discussion Papers with number
99/14.
Length: Date of creation: Date of revision: Handle: RePEc:yor:yorken:99/14
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Find related papers by JEL classification: D5 - Microeconomics - - General Equilibrium and Disequilibrium E0 - Macroeconomics and Monetary Economics - - General E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles H6 - Public Economics - - National Budget, Deficit, and Debt
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