International Fiscal Policy Transmission
International transmission of stochastic fiscal policy disturbances is examined in a two-country, general equilibrium framework, with possible excess supply equilibria with underutilization of resources. Nominal goods prices are sticky, although optimally set by firms in monopolistic competition. Asset prices are flexible. Agents have rational expectations. The spillover effect on foreign output of a domestic fiscal expansion differs from the standard positive Mundell-Fleming effect and depends on whether home and foreign goods are Edgeworth-Pareto complements or substitutes, which in turn depends on the relative size of intertemporal and intratemporal elasticities of substitution in consumption. Copyright 1987 by The editors of the Scandinavian Journal of Economics.
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Volume (Year): 89 (1987)
Issue (Month): 3 ()
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