Fiscal Multipliers and Balance Sheet Effects in a Small Open Economy

Martha López

Revista de Economía del Rosario, 2020, vol. 23, issue 2, No 18218, 42 pages

Abstract: Fiscal multipliers are different across countries and according to economic circumstances. Investment multipliers have recently been subjects of analysis, especially for advanced economies. For small open economies, such as Colombia, there is not much research in this regard, and there are no descriptions of the transmission mechanisms. In this paper, we present empirical evidence of the investment and output fiscal multipliers. Afterward, we present a set of models with financial frictions that describe the transmission mechanisms that explain the investment multipliers under different characteristics of the economy. The main results show that balance sheet effects with nominal contracts replicate the empirical findings of increase investment. The degree of openness of the economy and the level of country risk premium are essential mechanisms.

Keywords: Fiscal multipliers; fiscal policy rules; non-Ricardian households; dsge model; financial frictions; nominal contracts (search for similar items in EconPapers)
JEL-codes: D69 D91 E21 E22 E32 E44 E62 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000151:018218

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