This contribution shows that the duration of a fisscal shock together with sectoral capital intensity matter in determining the dynamic and steady-state effects in an intertemporal-optimizing two-sector small open economy model. First, unlike a permanent shock, net foreign asset position always...

Using a panel of eighteen OECD countries over the period 1970-2015, our evidence reveals that labor growth originates from non-traded industries while real GDP growth is uniformly distributed across sectors following a government spending shock. A rationale behind these two findings lies in...

An open economy version of the Baxter and King's [1993] model is constructed with habit formation to investigate the dynamic and steady-state effects of an expansionary budget policy. We show that empirical findings on the effects of a fiscal expansion can be easily reconciled with the...