Non-traded Goods and the International Transmission of Fiscal Policy

Michael Devereux

Canadian Journal of Economics, 1988, vol. 21, issue 2, 265-78

Abstract: This paper looks at the effect of nontraded goods on the international transmission of fiscal policy. Interte mporal movements in the price of nontraded goods affect real interest rates differentially between countries. The real interest-rate effec ts of a fiscal expansion depend crucially upon both the composition o f fiscal spending and the intertemporal elasticity of substitution. W ith a high intertemporal elasticity of substitution in consumption, a temporary fiscal expansion on nontraded goods will lead real consume r interest rates to move in opposite directions between countries.

Date: 1988
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