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Fiscal Shocks in a Two Sector Open Economy with Endogenous Markups

Cardi, Olivier and Restout, Romain (2015) Fiscal Shocks in a Two Sector Open Economy with Endogenous Markups. Macroeconomic Dynamics, 19 (8). pp. 1839-1865. ISSN 1365-1005

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We use a two-sector neoclassical open economy model with traded and nontraded goods and endogenous markups to investigate the effects of temporary fiscal shocks. One central finding is that theory can be reconciled with evidence once we allow for endogenous markups and assume that the traded sector is more capital-intensive than the nontraded sector. More precisely, although both ingredients are essential to produce the real exchange rate depreciation, only the second ingredient is necessary to account for the simultaneous decline in investment and the current account, in line with the evidence.

Item Type: Journal Article
Journal or Publication Title: Macroeconomic Dynamics
Uncontrolled Keywords: /dk/atira/pure/subjectarea/asjc/2000/2002
Departments: Lancaster University Management School > Economics
ID Code: 127362
Deposited By: ep_importer_pure
Deposited On: 10 Sep 2018 09:10
Refereed?: Yes
Published?: Published
Last Modified: 01 Jan 2020 11:31
URI: https://eprints.lancs.ac.uk/id/eprint/127362

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