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Fiscal multiplier in the small open economy under fixed exchange rates

  • Karel Brůna
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    This paper discusses theoretical aspects of the fiscal policy in the special economic system of the small open economy under fixed exchange rates. The author lays stress on the size of the fiscal multiplier as an analytical expression of the structure of this economy. The first part describes fiscal multiplier in the close economy, the second defines with more precision the open-economy fiscal multiplier and précis the final effects of national savings and their functions in the economy with context of the external balance and problems of the interest rates level, interest rates structure and demand for money in the context of high capital mobility on domestic output. The results of the study suggest that size of the open-economy fiscal multiplier depends on fiscal policy effects upon current account solvency and sustainability. In monetary economy the fiscal policy is also complicated by demand for and supply of money functions elasticities.

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    Article provided by University of Economics, Prague in its journal Politická ekonomie.

    Volume (Year): 1999 (1999)
    Issue (Month): 4 ()
    Pages:

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    Handle: RePEc:prg:jnlpol:v:1999:y:1999:i:4:id:55
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