The Financial Crisis has hit particularly hard countries like Ireland or Spain. Procyclical fiscal policy has contributed to a boom-bust cycle that undermined fiscal positions and deepened current account deficits during the boom. We set up an RBC model of a small open economy, following Mendoza...

The Financial Crisis has hit particularly hard countries like Ireland or Spain. Procyclical fiscal policy has contributed to a boom-bust cycle that undermined fiscal positions and deepened current account deficits during the boom. We set up an RBC model of a small open economy, following Mendoza...

This paper was presented at the All China Economics (ACE) International Conference, Hong Kong, 2006, XXXIII Symposium of Economic Analysis, Spain, 2007, DEGIT XVI Dynamics, Economic Growth and International Trade, Los Angeles, USA, 2009.