Do business cycle fluctuations leave a role and a welfare case for an active stabilization policy by means of fiscal policy instruments? We address this issue in a two-sector open economy model with price-taking firms and imperfect competition in the labour market. Fiscal policies are shown to...

The role of demand management policy is considered in a two-sector open economy model with price-taking firms and imperfect competition in the labor market. Demand management policies are shown to affect the equilibrium distribution of prices and hence output in the case of both supply...

The scope for an active demand management policy is considered for a small open economy. Business cycle fluctuations generated either by supply or demand shocks are shown to imply welfare losses when agents are risk averse and the capital market imcomplete. Public demand for non-tradeables has...