Fiscal Policy and the Current Account in a Small Open Economy

Juha Tervala ()
Additional contact information
Juha Tervala: University of Helsinki, Department of Economics, Finland

Finnish Economic Papers, 2007, vol. 20, issue 2, 108-120

Abstract: This paper analyses the macroeconomic effects of fiscal policy in a small open economy in a flexible exchange rate regime. The key result is that the effects of fiscal policy depend on the size of the elasticity of substitution between traded and nontraded goods. In particular, the sign of the current account response to fiscal policy depends on the interplay between the intertemporal elasticity of aggregate consumption and the elasticity of substitution between traded and nontraded goods. The paper also shows that only permanent fiscal expansions generate current account imbalances while temporary fiscal expansions do not affect the current account.

JEL-codes: E62 F31 F32 F41 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.taloustieteellinenyhdistys.fi/images/stories/fep/fep22007_tervala.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fep:journl:v:20:y:2007:i:2:p:108-120

Access Statistics for this article

More articles in Finnish Economic Papers from Finnish Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Editorial Secretary ( this e-mail address is bad, please contact ).