Kiel Working Papers, Kiel Institute for World Economics
No 1164:
Capital Mobility and the Effectiveness of Fiscal Policy in Open Economies
Christian Pierdzioch
Abstract: This paper uses a dynamic general equilibrium two-country
optimizing new-open economy macroeconomics model to analyze the
consequences of international capital mobility for the effectiveness of
fiscal policy. Conventional wisdom suggests that higher capital mobility
diminishes the effectiveness of fiscal policy. The model laid out in this
paper provides an example that a higher degree of capital mobility can also
increase the effectiveness of fiscal policy. This tends to be the case if
the stance of monetary policy can be described by means of a simple
monetary policy rule.
Keywords: Fiscal policy; Capital mobility; Financial market integration; Monetary Policy; (follow links to similar papers)
JEL-Codes: F36; F41; (follow links to similar papers)
25 pages, May 2003
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