Fiscal Shocks and the Current Account in the Redux Model: Evidence from the Italian Economy

Daniela Federici

International Advances in Economic Research, 2006, vol. 12, issue 2, 169-189

Abstract: The main goal of this paper is to study the effects of fiscal policy on the current account in the Italian economy through the analysis of one of the most innovative intertemporal models of recent years, the Obstfeld–Rogoff Redux model. The author proposes an innovative econometric approach to the model, based on the estimation of the microeconomic parameters that appear in its fundamental equations. The estimated parameters are used to empirically determine the multipliers that, according to the theory, connect permanent and temporary variations in public expenditure to the current account. Estimation is carried out on a dynamic extension of the original model, which has been developed modifying the first order conditions system of the maximization problem. Finally, the author provides a comparison between the results obtained and the actual dynamics of the Italian current account balance. Copyright IAES 2006

Keywords: F40; F41 (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1007/s11294-006-9002-x

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