Current-account targeting and the equilibrium approach to fiscal policy

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Title: Current-account targeting and the equilibrium approach to fiscal policy
Authors: Barry, Frank
Permanent link: http://hdl.handle.net/10197/1679
Date: May-1992
Abstract: Internal and external balance are the twins goals of traditional Keynesian macroeconomic policy. New classical economists question whether either of these are related to welfare, since employment fluctuations may be Pareto-efficient, while the current-account balance is perceived as the outcome of saving and investment decisions by intertemporally-optimising agents. The present paper shows, however, that the current-account effects and welfare effects of various types of fiscal policy are directly related within the New Classical model, so that the response of the current account can be used to elicit information about the optimality or otherwise of government spending. The equilibrium approach therefore provides a microfoundation for "external balance" as an intermediate target for fiscal spending.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Subject LCSH: Fiscal policy
Equilibrium (Economics)
Balance of payments
Macroeconomics
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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