On the Uncertain Fiscal Policy Effects in a Simple Open-Economy Macro Model

Howell Zee

Public Finance = Finances publiques, 1988, vol. 43, issue 3, 445-65

Abstract: This paper uses a standard model of a small, open economy to show that fiscal policy effects on output and the exchange rate are a priori indeterminate either on impact or in the steady state, even if all wealth effects are absent and domestic and foreign assets are perfect substitutes. It also identifies the existing values of the price elasticity of net exports, the share of foreign interest income in total disposable income, the share of foreign import price in the domestic price deflator, and the terms of trade as crucial in the determination of the outcome of a fiscal shock.

Date: 1988
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Persistent link: https://EconPapers.repec.org/RePEc:pfi:pubfin:v:43:y:1988:i:3:p:445-65

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