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Fiscal Policy in the New Open Economy Macroeconomics and Prospects for Fiscal Policy Coordination

  • Leonor Coutinho
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    This paper reviews the literature on the effects of fiscal policy in new open economy macroeconomics "NOEM" models, complementing it with additional results that attempt to clarify the importance of the exchange rate regime "fixed or flexible" and of the type of policy "balanced budget or debt-financed". Fixed exchange rates only seem to postpone the costs from the short to the long run, but the type of policy is crucial in determining the welfare impact of fiscal expansions. The paper also reviews the recent literature on fiscal policy coordination and shows that there is already some evidence that the gains from coordination in this area can be potentially large but draw attention to the need for reflecting more on the role of fiscal policy as a stabilization tool and on possible interactions between fiscal and monetary policy. Copyright Blackwell Publishers Ltd, 2005.

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    Article provided by Wiley Blackwell in its journal Journal of Economic Surveys.

    Volume (Year): 19 (2005)
    Issue (Month): 5 (December)
    Pages: 789-822

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    Handle: RePEc:bla:jecsur:v:19:y:2005:i:5:p:789-822
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    1. 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.
    2. 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.
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    5. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2002. "The Need for International Policy Coordination: What's Old, What's New, What's Yet to Come?," NBER Working Papers 8765, National Bureau of Economic Research, Inc.
    6. Giovanni Ganelli, 2002. "The New Open Economy Macroeconomics of Government Debt," Trinity Economics Papers 200214, Trinity College Dublin, Department of Economics.
    7. Schmitt-Grohé, Stephanie & Uribe, Martín, 2001. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," CEPR Discussion Papers 2963, C.E.P.R. Discussion Papers.
    8. Maurice Obstfeld & Kenneth Rogoff, 2002. "Global Implications Of Self-Oriented National Monetary Rules," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 503-535, May.
    9. Kim, Jinill & Kim, Sunghyun Henry, 2003. "Spurious welfare reversals in international business cycle models," Journal of International Economics, Elsevier, vol. 60(2), pages 471-500, August.
    10. Lane, P, 1999. "The New Open Economy Macroeconomics: A Survey," Trinity Economics Papers 993, Trinity College Dublin, Department of Economics.
    11. Maurice Obstfeld and Kenneth Rogoff., 1995. "Exchange Rate Dynamics Redux," Center for International and Development Economics Research (CIDER) Working Papers C95-048, University of California at Berkeley.
    12. Philip R. Lane & Giovanni Ganelli, 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," Trinity Economics Papers 200212, Trinity College Dublin, Department of Economics.
    13. Giancarlo Corsetti & Paolo Pesenti, 2001. "Welfare And Macroeconomic Interdependence," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 421-445, May.
    14. Caselli, Paola, 2001. "Fiscal consolidation under fixed exchange rates," European Economic Review, Elsevier, vol. 45(3), pages 425-450, March.
    15. Ganelli, Giovanni, 2002. "Fiscal Policy Rules in an Overlapping Generations Model with Endogenous Labour," Royal Economic Society Annual Conference 2002 79, Royal Economic Society.
    16. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
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