Fiscal Spending, Relative-Price Dynamics, and Welfare in a World Economy

21 Pages Posted: 29 Apr 2005

See all articles by Yoshiyasu Ono

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

Akihisa Shibata

Kyoto University

Abstract

This paper analyzes the dynamics of a 2 x 2 x 2 Heckscher-Ohlin model where foreign asset holdings and capital accumulation are independently determined by optimizing agents. Each country has two production sectors, both of whose products are used for consumption, and an investment sector, which uses one of the two commodities to accumulate real capital. In this setting we examine the effects of fiscal spending on the equilibrium paths of interest rates and prices and each country's lifetime utility. The welfare effect is found to consist of the static terms-of-trade effect, the dynamic foreign asset effect and the direct income-loss effect.

Suggested Citation

Ono, Yoshiyasu and Shibata, Akihisa, Fiscal Spending, Relative-Price Dynamics, and Welfare in a World Economy. Review of International Economics, Vol. 13, No. 2, pp. 216-236, May 2005. Available at SSRN: https://ssrn.com/abstract=712197

Yoshiyasu Ono (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

Akihisa Shibata

Kyoto University ( email )

Yoshida-Honmachi, Sakyo-ku
Institute of Economic Research
Kyoto 606-8501
075 753 7198 (Fax)

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