Title The effects of government spending under limited capital mobility / prepared by Wenyi Shen and Shu-Chun S. Yang

Published [Washington, D.C.] : International Monetary Fund, ©2012

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Description 1 online resource (41 pages) : illustrations Series IMF working paper ; WP/12/129 IMF working paper ; WP/12/129 Contents Cover; Contents; I. Introduction; II. Model Setup; A. Households; B. Firms; C. The Government; D. Reserve and Monetary Policy; E. Aggregation and Some Identities; III. Equilibrium, Solution, and Calibration; IV. Government Spending Effects and External Financing; A. Without External Financing; B. With External Financing; C. Twin Deficit Hypothesis; V. Other Country Characteristics; A. Composition of Government Purchases; B. Sectoral Rigidities of Production Factors; C. Fraction of Hand-to-Mouth Households; D. The Exchange Rate Regime; E. Capital Account Openness F. Interactions with External FinancingVI. Conclusions; Tables; 1. Steady State; 2. Baseline Calibration; 3. Fiscal Multipliers for Government Spending; Figures; 1. Impulse Responses to a 10-Percent Increase in Government Spending: Baseline Calibration; 2. Impulse Responses to a 10-Percent Increase in Government Spending: Country Premium; 3. Impulse Responses to a 10-Percent Increase in Government Spending: Twin Deficits; 4. Impulse Responses to a 10-Percent Increase in Government Spending: Home Bias in Government Purchases 5. Impulse Responses to a 10-Percent Increase in Government Spending: Capital Account Openness6. Interactions with External Financing; Appendix; References Summary This paper studies the effects of government spending under limited international capital mobility, as featured by most developing countries. While external financing of government debt mitigates the crowding-out effect, it generates real appreciation, which contracts traded output and lowers the fiscal multiplier in the short run. The decline of the multiplier is larger when facing debt-elastic country risk premia. Also, government spending is more expansionary with more home bias in government purchases, more sectoral rigidities, and a less flexible exchange rate. Whether the twin-deficit hypothesis holds depends crucially on the extent to which government deficits are financed externally Notes Title from PDF title page (IMF Web site, viewed May 30, 2012) Bibliography Includes bibliographical references Notes "Research Department." "May 2012." Subject Government spending policy -- Developing countries -- Econometric models Fiscal policy -- Developing countries -- Econometric models Multiplier (Economics) -- Econometric models Fiscal policy -- Econometric models Government spending policy -- Econometric models Developing countries Form Electronic book Author Yang, Shu-Chun Susan, 1971- author International Monetary Fund. Research Department, issuing body ISBN 9781475503661 1475503660

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