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Fiscal policy in an emerging market business cycle model

Author

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  • Chetan Ghate

    () (Indian Statistical Institute, Delhi)

  • Pawan Gopalakrishnan

    () (Indian Statistical Institute, Delhi)

  • Suchismita Tarafdar

    () (Shiv Nadar University)

Abstract

Emerging market economy business cycles are typically characterized by high consumption and output volatility, strongly counter-cyclical current accounts, and counter-cyclical real interest rates. Evidence from the wider EME and less developed economy business cycle experience suggests however that real interest rates can also be pro-cyclical. We reconcile the pro-cyclicality of real interest rates with the above facts by embedding ™scal policy into a standard emerging market business cycle model. We show that ™scal policy makes real interest rates a-cyclical or pro-cyclical. We use the model to replicate qualitatively some of the key features of the Indian business cycle.

Suggested Citation

  • Chetan Ghate & Pawan Gopalakrishnan & Suchismita Tarafdar, 2014. "Fiscal policy in an emerging market business cycle model," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 14-11, Indian Statistical Institute, New Delhi, India.
  • Handle: RePEc:ind:isipdp:14-11
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    References listed on IDEAS

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    Cited by:

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    2. Vasilev, Aleksandar, 2020. "How quantitatively important is public investment for both business cycle fluctuations and output growth in Bulgaria (1999-2018)?," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
    3. Ghosh, Saurabh & Gopalakrishnan, Pawan & Satija, Sakshi, 2019. "Recapitalization in an Economy with State-Owned Banks - A DSGE Framework," MPRA Paper 96981, University Library of Munich, Germany.

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    More about this item

    Keywords

    Emerging Market Business Cycles; Fiscal Policy in a Small Open Economy; Indian Business Cycle; Interest Rate Shocks; Macroeconomic Stabilization;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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