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Multipliers and Imperfect Competition: What is the role of Capital Depreciation

  • Luis F. Costa

In static general equilibrium models considering imperfectly competitive goods markets, the effectiveness of fiscal policy to stir output is shown to be greater than in the walrasian case. However, labour is the only input in these models. Here, 1 develop a simple intertemporal model allowing us to study the steady-state role of optimal capital stock in the fiscal policy transmission mechanism. 1 demonstrate the results depend strongly on the set of parameter values chosen and on the output definition. Using plausible numerical values the multiplier is larger in the walrasian case for small initial government purchases, and smaller for intermediate values.

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Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2000/03.

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Date of creation: 2000
Date of revision:
Handle: RePEc:ise:isegwp:wp32000
Contact details of provider: Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
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  1. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers 1131, C.E.P.R. Discussion Papers.
  2. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
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  10. Costa, Luis F, 2001. "Can Fiscal Policy Improve Welfare in a Small Dependent Economy with Feedback Effects," Manchester School, University of Manchester, vol. 69(4), pages 418-39, September.
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  13. Dixon, Huw & Lawler, Phillip, 1996. " Imperfect Competition and the Fiscal Multiplier," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 219-31, June.
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