The fiscal multiplier and spillover in a global liquidity trap

Ippei Fujiwara, Kozo Ueda

研究成果: Article査読

10 被引用数 (Scopus)

抄録

We consider the fiscal multiplier and spillover-the extent to which one country's government expenditure increases production at home and also in another foreign country, when the two countries are caught simultaneously in a liquidity trap. Using a standard new open economy macroeconomics (NOEM) model, we show that the fiscal multiplier and spillover are contrary to textbook economics. For the country where government expenditure takes place, the fiscal multiplier exceeds one, the currency depreciates, and the terms of trade worsen. The fiscal spillover is negative if the intertemporal elasticity of substitution in consumption is less than one, and positive if it is greater than one. Incomplete stabilization of marginal costs due to the existence of the zero lower bound is critical in understanding the effects of fiscal policy in open economies. These results remain unchanged even if we incorporate incomplete markets or endogenous capital into the model, but local currency pricing yields positive fiscal spillover irrespective of the size of the intertemporal elasticity of substitution.

本文言語English
ページ(範囲)1264-1283
ページ数20
ジャーナルJournal of Economic Dynamics and Control
37
7
DOI
出版ステータスPublished - 2013 7

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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