Habit Formation and Fiscal Transmission in Open Economies

Olivier Cardi and Gernot Müller

Working Papers from HAL

Abstract: In this paper we analyze the ability of an open economy version of the neoclassical model to account for the time-series evidence on fiscal policy transmission. In a first step, we identify government spending shocks within a vector autoregression model. We find that i) government spending increases output and induces a simultaneous decline of investment and the current account, but does not affect consumption; ii) the responses of output and investment are smaller in more open economies, while current account deficits tend to be larger. We find the predictions of the model to be broadly in line with the evidence, once we allow for habit formation in consumption. Specifically, habits are crucial for government spending to induce a simultaneous decline in investment and the current account.

Keywords: Fiscal Policy; Investment; Current Account; Habit Formation; Fiscal Policy. (search for similar items in EconPapers)
Date: 2010-12-08
Note: View the original document on HAL open archive server: https://hal.science/hal-00544484
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://hal.science/hal-00544484/document (application/pdf)

Related works:
Journal Article: Habit formation and fiscal transmission in open economies (2011)
Working Paper: Habit Formation and Fiscal Transmission in Open Economies (2010)
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:hal:wpaper:hal-00544484

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().