Many economic booms have been accompanied by a real exchange rate appreciation, a large trade deficit and a deteriorating traded sector, and have raised the question of the desirability of some stabilization policy. We characterize the dynamics created by an expected productivity rise in an open...

This paper deploys a simple stock-flow consistent (SFC) model in order to examine various contentions regarding fiscal and monetary policy. It follows from the model that if the fiscal stance is not set in the appropriate fashion that is, at a well-defined level and growth rate - then full...

This study develops a dynamic stochastic general equilibrium model to account for the differences in fiscal policy stance over the business cycle between developed and emerging market countries, and, in particular, for the volatile and procyclical government consumption and transfer payment in...

The IS-LM model has largely contributed to the spread of a belief that a reduction of fiscal deficit has to lead to a drop in output in the short term. However, if one modifies even a single assumption of that model, the relationship between change in output and fiscal deficit respectively may...

Many years since their introduction, positive theories of inflation have rarely been tested. This paper documents a negative relationship between inflation and the welfare state (proxied by the parameters of the unemployment benefit program) that is to be expected in such theories. Because...

This paper investigates currency and financial crises in an optimizing general equilibrium model. It is shown that a rise in current and expected future budget deficits generates a real exchange rate appreciation and a decumulation of external assets, leading up to a currency crisis when foreign...

The consequences of government debt on capital formation, financial wealth and labor are investigated in a small open economy with demographic heterogeneity. Two alternative types of demographics are considered: one with intragenerational heterogeneity of the "savers-spenders" (SS) type, and one...

This paper explores how accounting consistency affects DSGE models. As many DSGE models descended from real business cycle models, I explore a simple labor-only RBC model and then a simple capital-and-labor RBC model with an exogenous external sector introduced. The conclusion reached in this...

We analyze the effects of world wars on the macroeconomic dynamics of the U.S., France, Germany, and the UK, by means of an estimated open-economy model. The model allows wars to affect the economy through capital depreciation, sovereign default, a military draft, household preferences, and...