Does globalization enhance the role of fiscal policy in economic stabilization?

Alena Kimakova ()
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Alena Kimakova: York University

Economics Bulletin, 2006, vol. 8, issue 11, 1-11

Abstract: This note proposes a research agenda for studying the implications of enhanced capital mobility and limited de facto exchange rate flexibility for the conduct of macroeconomic stabilization. The ineffectiveness of monetary policy under such conditions suggests a greater role for fiscal policy as a stabilization instrument. The paper outlines a methodology for empirically verifying whether financially more open economies with a preference for exchange rate regimes with limited de facto flexibility implement a more counter-cyclical fiscal policy. Empirical testing of this hypothesis at the cross-national level is nonetheless hindered by data availability. Statistics on cyclically adjusted budget balances are typically available for OECD member countries only, but this sample offers little variation in terms of de facto exchange rate regime choice.

JEL-codes: E6 H1 (search for similar items in EconPapers)
Date: 2006-07-25
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Citations: View citations in EconPapers (1)

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