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Business Cycles and Fiscal Policy in an Open Economy

Torben M. Andersen
University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Steinar Holden
University of Oslo - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

February 1998

University of Aarhus Dept. of Economics Working Paper No. 1998-5

Abstract:
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 (productivity) and demand (preferences) shocks. As agents are risk-averse, there is a welfare case for pursuing an active stabilization policy, and the optimal fiscal policy as well as the possibility of implementing this via automatic budget rules are discussed.

JEL Classifications: E32, E63, F41

Working Paper Series

Date posted: June 25, 1998 ; Last revised: June 30, 1998

Suggested Citation

Andersen, Torben M. and Holden, Steinar, Business Cycles and Fiscal Policy in an Open Economy (February 1998). University of Aarhus Dept. of Economics Working Paper No. 1998-5. Available at SSRN: http://ssrn.com/abstract=101948 or doi:10.2139/ssrn.101948

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Contact Information

Torben M. Andersen (Contact Author) University of Aarhus - Department of Economics ( email ) University Park Building 322 DK-8000 Aarhus C Denmark +45 8 942 1609 (Phone) +45 8 613 6334 (Fax)
CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Poschinger Str. 5 DE-81679 Munich Germany
Centre for Economic Policy Research (CEPR) 90-98 Goswell Road London EC1V 7RR United Kingdom
Institute for the Study of Labor (IZA) P.O. Box 7240 D-53072 Bonn Germany
Steinar Holden University of Oslo - Department of Economics ( email ) P.O. Box 1095 Blindern N-0317 Oslo Norway +47 22 85 51 56 (Phone) +47 22 85 50 35 (Fax) HOME PAGE: http://folk.uio.no/~sholden/
CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Poschinger Str. 5 DE-81679 Munich Germany HOME PAGE: http://www.CESifo.de