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Liquidity Constraints and Fiscal Stabilization Policy

Author

Listed:
  • Mark Strøm Kristoffersen

    (Department of Economics and Business, Aarhus University, Denmark)

Abstract

It is often claimed that the presence of liquidity constrained households enhances the need for and the effects of fiscal stabilization policies. This paper studies this in a model of a small open economy with liquidity constrained households. The results show that the consequences of liquidity constraints are more complex than previously thought: The optimal stabilization policy in case of productivity shocks is independent of the liquidity constraints, and the presence of liquidity constraints tends to reduce the need for an active policy stabilizing productivity shocks.

Suggested Citation

  • Mark Strøm Kristoffersen, "undated". "Liquidity Constraints and Fiscal Stabilization Policy," Economics Working Papers 2011-07, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2011-07
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    File URL: https://repec.econ.au.dk/repec/afn/wp/11/wp11_07.pdf
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    More about this item

    Keywords

    Liquidity constraints; Stabilization policy; Fiscal policy; Small open economy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

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