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Fiscal Policy in a Small Open Economy with Oil Sector and non-Ricardian Agents

  • Andrés González

    ()

  • Martha Rosalba López Piñeros

    ()

  • Norberto Rodríguez Niño

    ()

  • Santiago Téllez

    ()

In this paper we develop a dynamic stochastic general equilibrium fiscal model for the Colombian economy. The model has three main components: the existence of non-Ricardian households, price and wage rigidities, and a fiscal authority that finances government spending partly with public debt. The model is calibrated to capture the empirical evidence on the macroeconomic effects of government spending and it is used to study the effect of an oil price shock under different fiscal policy rules. Our results show that fiscal multipliers in Colombia are positive in a way consistent with the evidence. Our analysis also shows that a structural fiscal rule delivers a better outcome in terms of macroeconomic volatility relative to a balanced budget rule or a countercyclical fiscal rule.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 759.

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Length: 32
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:bdr:borrec:759
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  1. Colciago, Andrea, 2005. "Rule of Thumb Consumers Meet Sticky Wages," MPRA Paper 3275, University Library of Munich, Germany, revised 27 Apr 2007.
  2. Ravn, Morten O & Schmitt-Grohé, Stephanie & Uribe, Martín, 2007. "Explaining the Effects of Government Spending Shocks on Consumption and the Real Exchange Rate," CEPR Discussion Papers 6541, C.E.P.R. Discussion Papers.
  3. Aarón Garavito A. & Ana María Iregui B. & María Teresa Ramírez G., 2012. "Inversión Extranjera Directa en Colombia: Evolución reciente y marco normativo," Borradores de Economia 713, Banco de la Republica de Colombia.
  4. Franz Hamann & Ignacio Lozano & Luis Fernando Mejía, . "Sobre el impacto macroeconómico de los beneficios tributarios al capital," Borradores de Economia 668, Banco de la Republica de Colombia.
  5. Ignacio Lozano & Karen Rodríguez, . "Assessing the Macroeconomic Effects of Fiscal Policy in Colombia," Borradores de Economia 552, Banco de la Republica de Colombia.
  6. Leopoldo Fergusson, 2003. "Tributación, Crecimiento Y Bienestar: El Caso Colombiano(1970-1999)," DOCUMENTOS CEDE 003662, UNIVERSIDAD DE LOS ANDES-CEDE.
  7. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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