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Fiscal policy efficiency and coordination: The New Open Economy Macroeconomics Approach

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  • Gilbert Koenig
  • Irem Zeyneloglu

Abstract

The paper offers a survey of recent research on fiscal policy in both deterministic and stochastic models of the New Open Economy Macroeconomics (NOEM) initiated by Obstfeld and Rogoff (1995, 2002b). The survey includes a comparison of the implications of the deterministic benchmark model to the empirical evidence obtained in recent studies. It provides a detailed discussion of the recent extensions induced by the gap between theoretical and empirical implications. These extensions revise the traditionally studied aspects of fiscal issues such as the transmission channels of fiscal policy by introducing production specialization at the international level or by diversifying the pricing decisions of firms. They also cover current economic issues such as the effect of financial globalization on fiscal policy efficiency and the implication of a reduction in public employment in order to cut taxes. After presenting the basic features of a benchmark stochastic NOEM model for fiscal policy, the paper discusses the recent developments the gains from international fiscal policy cooperation with respect to gains from fiscal stabilization.

Suggested Citation

  • Gilbert Koenig & Irem Zeyneloglu, 2010. "Fiscal policy efficiency and coordination: The New Open Economy Macroeconomics Approach," Working Papers of BETA 2010-18, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2010-18
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    File URL: http://www.beta-umr7522.fr/productions/publications/2010/2010-18.pdf
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    References listed on IDEAS

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    1. Bussière, Matthieu & Fratzscher, Marcel & Müller, Gernot J., 2010. "Productivity shocks, budget deficits and the current account," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1562-1579, December.
    2. Marc-Hubert Depret & Abdelillah Hamdouch, 2010. "Les clusters et les réseaux comme fondements de la dynamique d'innovation dans l'industrie biopharmaceutique," Working Papers of BETA 2010-11, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    3. Carre, Martine & Collard, Fabrice, 2003. "Monetary union: A welfare based approach," European Economic Review, Elsevier, vol. 47(3), pages 521-552, June.
    4. Dirk V Muir & Douglas Laxton & Dennis P Botman & Andrei Romanov, 2006. "A New-Open-Economy Macro Model for Fiscal Policy Evaluation," IMF Working Papers 06/45, International Monetary Fund.
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    Cited by:

    1. Meixing Dai, 2012. "External Constraint and Financial Crises with Balance Sheet Effects," International Economic Journal, Taylor & Francis Journals, vol. 26(4), pages 567-585, March.

    More about this item

    Keywords

    New Open Economy Macroeconomics; fiscal policy; stochastic and deterministic general equilibrium models.;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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