Limits to Fiscal and Monetary Policy in Small Open Economies
Bibliographic Data
| ID | 12229656 |
|---|---|
| Authors | Ariel Dvoskin (0000-0001-6603-6012, BCRA / CONICET-EIDAES, Buenos Aires, Argentina), Matías Torchinsky Landau (0000-0003-0043-6042, CONICET-EIDAES, Buenos Aires, Argentina, corresponding author) |
| Year | 2023 |
| Volume | 36 |
| Issue | 5 |
| Pages | 1915-1942 |
| Publication date | 2023-11-30 |
| Peer Reviewed | Yes |
| Open Access | No |
| Type | ARTICLE |
| Venue | Review of Political Economy (JOURNAL) |
| Journal identifiers | ISSN: 0953-8259 • E-ISSN: 1465-3982 |
| Publisher | Taylor & Francis (PUBLISHER • GB) |
| DOI | 10.1080/09538259.2023.2279162 |
| OpenAlex | W4389205776 |
| Language | EN |
| Citations received | 4 |
| References cited | 55 |
In this paper we investigate the impact of the balance-of-payments constraint on output, income distribution and policy space in a small economy open to both commercial and financial flows. We do so by extending a Sraffian supermultiplier growth model to consider current and capital accounts and endogenous money. Expansionary fiscal policies increase output and its long run growth rate but have a negative impact on the balance-of-payments. Based on these results, we derive the value of government spending that maximises output while maintaining external equilibrium.Monetary policy also influences the balance-of-payments by attracting foreign financial flows through higher interest rates. This relationship is non-monotonic, since these flows can finance the external deficit resulting from a high output level but can also lead to a greater interest burden. This trade off allows us to find the level of the interest rate that maximises external space. It also implies that, with limits, raising interest rates might allow for higher real wages.Lastly, we examine the effects of the currency denomination of debt. We find that, in case of a depreciation, debt in domestic currency allows for a less contractionary adjustment than foreign currency-denominated debt but does not lead to higher economic growth
Balance of payments · Capital formation · Currency · Current account · Debt · Depreciation (economics · Economics · Exchange rate · External debt · Financial capital · Fiscal policy · Interest rate · Macroeconomics · Monetary economics · Monetary policy · Open economy · Small open economy · Economic Theory and Policy · Global Financial Crisis and Policies · Monetary Policy and Economic Impact
Contractionary effects of devaluation
Capital Mobility and Stabilization Policy Under Fixed and Flexible Exchange Rates
Fear of Floating
Dilemma not Trilemma
Overcoming Original Sin
Interactions between the Multiplier Analysis and the Principle of Acceleration
The sustainability of monetary sterilization policies
Inflation and Conflicting Claims in the Open Economy
Exclusion in ‘Ricardian’ Trade Models
Growth Rate and Level Effects, the Stability of the Adjustment of Capacity to Demand and the Sraffian Supermultiplier
Components of Autonomous Demand Growth and Financial Feedbacks
Long Period Effective Demand and the Sraffian Supermultiplier
A Note on the Impact of Devaluation and the Redistributive Effect
El salario real y la restricción externa de la economía
The Mirage of Fixed Exchange Rates
Capital flows and geographically uneven economic dynamics
| Unique citing works | 4 |
|---|---|
| Citations per year | 2 |
| Citation span | 2024 - 2025 (2) |
| Citation velocity | recent |
| Highly cited | No |
| Citation types | Neutral: 4 |