Fiscal policy in an emerging market business cycle model

Authors

Chetan Ghate, Indian Statistical Institute (Delhi Centre)
Pawan Gopalakrishnan, Indian Statistical Institute (Delhi Centre)
Suchismita Tarafdar, Shiv Nadar Institution of Eminence deemed to be University

Article Type

Research Article

Publication Title

Journal of Economic Asymmetries

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 some of the key features of the Indian business cycle.

First Page

52

Last Page

77

DOI

10.1016/j.jeca.2016.07.004

Publication Date

11-1-2016

Comments

Open Access; Green Open Access

Recommended Citation

Ghate, Chetan; Gopalakrishnan, Pawan; and Tarafdar, Suchismita, "Fiscal policy in an emerging market business cycle model" (2016). Journal Articles. 4214.
https://digitalcommons.isical.ac.in/journal-articles/4214