Fiscal and Current Account Balances in a Model with Sticky Prices and Distortionary Taxes
This paper examines the interaction of fiscal and current account balances in open economies subject to monopolistic competition with sticky price-setting behavior, adjustment costs for investment, and distortionary labor income taxes. We find that the elasticity of exports with respect to the real exchange rate influences the correlation between the balances. In particular, in simulations with recurring shocks to productivity, we find that the balances are positively correlated for a range of export elasticities. However, for simulations with recurring real government expenditure shocks, we find that the balances are positively correlated under high export elasticity but negatively correlated under low export elasticity.
Year of publication: |
2006-10
|
---|---|
Authors: | Lim, G. C. ; McNelis, Paul D. |
Institutions: | Melbourne Institute of Applied Economic and Social Research (MIAESR), Faculty of Business and Economics |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Income Inequality, Trade and Financial Openness
Lim, G. C., (2014)
-
Cyclical Government Spending, Income Inequality and Welfare in Small Open Economies
Lim, G. C., (2008)
-
Inflation Targeting, Learning and Q Volatility in Small Open Economies
Lim, G. C., (2006)
- More ...