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An examination of the effects of government purchases in an open economy

Publication ,  Journal Article
Kimbrough, KP
Published in: Journal of International Money and Finance
January 1, 1985

This paper examines the effects of permanent and transitory changes in government purchases in the context of a model of a small open economy that produces and consumes both traded and nontraded goods. The model incorporates an equilibrium interpretation of the business cycle that emphasizes the responsiveness of agents to intertemporal relative price changes. It is demonstrated that transitory increases in government purchases lead to an appreciation of the real exchange rate and an ambiguous change (although a likely worsening) in the current account, while permanent increases have an ambiguous impact on the real exchange rate and no effect on the current account. When agents do not know whether a given increase in government purchases is permanent or transitory the effect is a weighted average of these separate effects. The weights depend on the relative variances of the transitory and permanent components of government purchases. © 1985.

Duke Scholars

Published In

Journal of International Money and Finance

DOI

ISSN

0261-5606

Publication Date

January 1, 1985

Volume

4

Issue

1

Start / End Page

113 / 133

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1403 Econometrics
  • 1402 Applied Economics
 

Citation

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Kimbrough, K. P. (1985). An examination of the effects of government purchases in an open economy. Journal of International Money and Finance, 4(1), 113–133. https://doi.org/10.1016/0261-5606(85)90009-9
Kimbrough, K. P. “An examination of the effects of government purchases in an open economy.” Journal of International Money and Finance 4, no. 1 (January 1, 1985): 113–33. https://doi.org/10.1016/0261-5606(85)90009-9.
Kimbrough KP. An examination of the effects of government purchases in an open economy. Journal of International Money and Finance. 1985 Jan 1;4(1):113–33.
Kimbrough, K. P. “An examination of the effects of government purchases in an open economy.” Journal of International Money and Finance, vol. 4, no. 1, Jan. 1985, pp. 113–33. Scopus, doi:10.1016/0261-5606(85)90009-9.
Kimbrough KP. An examination of the effects of government purchases in an open economy. Journal of International Money and Finance. 1985 Jan 1;4(1):113–133.
Journal cover image

Published In

Journal of International Money and Finance

DOI

ISSN

0261-5606

Publication Date

January 1, 1985

Volume

4

Issue

1

Start / End Page

113 / 133

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1403 Econometrics
  • 1402 Applied Economics