Fiscal Policy in an Emerging Market Business Cycle Model

Chetan Ghate, Pawan Gopalakrishnan and Suchismita Tarafdar

MPRA Paper from University Library of Munich, Germany

Abstract: Emerging market economy business cycles are typically characterized by high consumption and output volatility, strongly counter-cyclical current accounts, and counter-cyclical real interest rates. Evidence from the wider EME and less developed economy business cycle experience suggests however that real interest rates can also be pro-cyclical. We reconcile the pro-cyclicality of real interest rates with the above facts by embedding fiscal policy into a standard emerging market business cycle model. We show that fiscal policy makes real interest rates a-cyclical or pro-cyclical. We use the model to replicate qualitatively some of the key features of the Indian business cycle.

Keywords: Emerging Market Business Cycles; Fiscal Policy in a Small Open Economy; Indian Business Cycle; Interest Rate Shocks; Macroeconomic Stabilization (search for similar items in EconPapers)
JEL-codes: E32 F32 F41 H2 (search for similar items in EconPapers)
Date: 2014-12-08
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Fiscal policy in an emerging market business cycle model (2016)
Working Paper: Fiscal policy in an emerging market business cycle model (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:60449

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