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Fiscal consolidation in an open economy

Christopher John Erceg and Jesper Lindé

No 1046, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

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.

New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-opm
Date: 2012
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Related works:
Journal Article: Fiscal Consolidation in an Open Economy (2012) Downloads
Working Paper: Fiscal Consolidation in an Open Economy (2012) Downloads
Working Paper: Fiscal Consolidation in an Open Economy (2012) Downloads
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