In this paper, we demonstrate that the influence of monopolistic competition in the product market on an economy's impact response to fiscal shocks depends on the persistence of these shocks. While short-lived increases in lump-sum financed government expenditure have a stronger effect on labor...

We consider an economy in which a political-support maximizing government takes into account different generations' preferences when deciding how much to borrow abroad and how much to spend on public consumption and investment. We show that, in equilibrium, the government's choices are shaped by...

We argue that a higher share of the private sector in a country’s external debt raises the incentive to stabilize the exchange rate. We present a simple model in which exchange rate volatility does not affect agents’ welfare if all the debt is incurred by the government. Once we introduce...

In this paper, we present empirical evidence that higher income inequality is associated with a greater equity share in countries' external liabilities, and we develop a theoretical model that can explain this observation: In a small open economy with traded and nontraded goods, entry barriers...