FRB: Fiscal Consolidation in an Open Economy

International Finance Discussion Papers

Fiscal Consolidation in an Open Economy
Christopher J. Erceg and Jesper Lindé
2012-1046 (April 2012)

Abstract: This paper uses a New Keynesian DSGE model of a small open economy to compare how the effects of fiscal consolidation differ depending on whether monetary policy is constrained by currency union membership or by the zero lower bound on policy rates. We show that there are important differences in the impact of fiscal shocks across these monetary regimes that depend both on the duration of the zero lower bound and on features that determine the responsiveness of inflation.

Full paper (141 KB PDF)

Keywords
Monetary policy, currency union, fiscal policy, zero lower bound constraint, new Keynesian small open economy DSGE model

PDF files: Adobe Acrobat Reader ZIP files: PKWARE

Home | IFDPs | List of 2012 IFDPs
Accessibility | Contact Us
Last update: May 3, 2012