Terms-of-Trade Disturbances and Fiscal Policy in a Small Open Economy
This paper examines the dynamic and steady-state effects of shifts in the terms of trade and the level of government debt in a small open economy. The study is based on a simulation model that is loosely calibrated to the Canadian economy. There are three goods in the model: nontradables, importables, and exportables. Consumers optimize over their expected lifetime and do not care about the well-being of future generations, so Ricardian equivalence does not hold. Profit-maximizing firms use inputs of capital, labor, and an intermediate good and face costly adjustment of capital. Copyright 1993 by Royal Economic Society.
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Volume (Year): 103 (1993)
Issue (Month): 419 (July)
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