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Fiscal Policy and the Masstricht Solvency Criteria

Ray Barrell and James Sefton ()

The Manchester School of Economic & Social Studies, 1997, vol. 65, issue 3, 259-79

Abstract: This paper examines the implications of fiscal policy and growing debt stocks for the economy. The authors construct an extended Mundell-Fleming model, along the lines of W. H. Buiter and M. Miller (1981), that allows them to investigate the effects of fiscal policy and debt accumulation on an open economy. In order to analyze the implications of fiscal restrictions such as the Maastricht convergence criteria, they undertake some policy analyses on their estimated model NiGEM. This model closely resembles the theoretical construct in its long-run structure but allows for crucial differences in the speed of dynamic responses in a number of markets. The authors find that, although in the long term the level of activity is unaffected, the fiscal restrictions will reduce output and raise unemployment in the short to medium term. Copyright 1997 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1997
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