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International Fiscal Policy Transmission

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  • Svensson, Lars E O

Abstract

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.

Suggested Citation

  • Svensson, Lars E O, 1987. " International Fiscal Policy Transmission," Scandinavian Journal of Economics, Wiley Blackwell, vol. 89(3), pages 305-334.
  • Handle: RePEc:bla:scandj:v:89:y:1987:i:3:p:305-34
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    Cited by:

    1. Nicola Acocella & Giovanni Di Bartolomeo, 2003. "Wage and Public Expenditure Setting in a Monetary Union," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 6(1-2), pages 1-16, May - Nov.
    2. van der Ploeg, Frederick, 1993. "Channels of international policy transmission," Journal of International Economics, Elsevier, vol. 34(3-4), pages 245-267, May.
    3. Nicola Acocella & Giovanni Di Bartolomeo, 2001. "Partisanship and fiscal policy co-ordination in a monetary union," Macroeconomics 0106003, University Library of Munich, Germany.
    4. Müller, Gernot J., 2008. "Understanding the dynamic effects of government spending on foreign trade," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 345-371, April.
    5. Christophe Blot, 2005. "Sensibilité du taux de change aux chocs monétaires et budgétaires. Une analyse en termes de VAR des fluctuations euro/dollar," Revue de l'OFCE, Presses de Sciences-Po, vol. 93(2), pages 287-315.
    6. 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.
    7. Sajid Anwar, 1997. "International Transmission of Government Spending, Monopolistic Competition and North-South Trade," International Economic Journal, Taylor & Francis Journals, vol. 11(4), pages 113-126.
    8. Sajid Anwar, 1993. "International transmission of government spending on industries," Open Economies Review, Springer, vol. 4(3), pages 287-301, September.
    9. Michael Evers, 2007. "Optimal Monetary Policy in an Interdependent World," Bonn Econ Discussion Papers bgse10_2007, University of Bonn, Germany.

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