The Effects of Government Spending Under Limited Capital Mobility

The Effects of Government Spending Under Limited Capital Mobility
Author :
Publisher : International Monetary Fund
Total Pages : 74
Release :
ISBN-10 : 9781475562163
ISBN-13 : 1475562160
Rating : 4/5 (63 Downloads)

Book Synopsis The Effects of Government Spending Under Limited Capital Mobility by : Ms.Wenyi Shen

Download or read book The Effects of Government Spending Under Limited Capital Mobility written by Ms.Wenyi Shen and published by International Monetary Fund. This book was released on 2012-05-01 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.


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