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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. Giancarlo Corsetti & Paolo Pesenti, 2001. "Welfare And Macroeconomic Interdependence," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 421-445, May.
    2. 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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    12. 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.
    13. Tille, Cedric, 2001. "The role of consumption substitutability in the international transmission of monetary shocks," Journal of International Economics, Elsevier, vol. 53(2), pages 421-444, April.
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