Government Spending and the International Business Cycle
In this paper, the author develops a stochastic general equilibrium model of the world economy. It differs from previous multicountry models in the introduction of the government sector. The author assumes that countries produce a nonspecialized traded good and that households derive utility from the consumption of private and public goods and services. This simple modification has a potential explanation for the low cross-country correlations in private consumption and output and the countercyclical trade balances that are observed empirically.
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Volume (Year): 29 (1996)
Issue (Month): 4 (November)
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