Fiscal Consolidation in an Open Economy

Jesper Lindé and Christopher Erceg

No 8955, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper uses a New Keynesian DSGE model of a small open economy to compare how the effects of fiscal consolidation differ depending on whether monetary policy is constrained by currency union membership or by the zero lower bound on policy rates. We show that there are important differences in the impact of fiscal shocks across these monetary regimes that depend both on the duration of the zero lower bound and on features that determine the responsiveness of inflation.

Keywords: Monetary policy; Currency union; Fiscal policy; Zero lower bound constraint; New keynesian small open economy dsge model (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2012-04
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (63)

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Related works:
Journal Article: Fiscal Consolidation in an Open Economy (2012)
Working Paper: Fiscal consolidation in an open economy (2012)
Working Paper: Fiscal Consolidation in an Open Economy (2012)
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