2012年-IMF国际货币组织全球_The_Effects_of_Government_Spending_Under_Limited_Capital_Mobility_41页_1001kb

Summary of "The Effects of Government Spending under Limited Capital Mobility"

Core Content

This paper examines the effects of government spending in developing countries under conditions of limited capital mobility, which is a key characteristic of these economies. It uses a small-open New Keynesian DSGE model to analyze how fiscal policy impacts output, inflation, and the fiscal multiplier, considering the interactions between domestic and external financing, exchange rate dynamics, and structural features such as home bias and sectoral rigidities.

Main Viewpoints

• Limited Capital Mobility: Developing countries typically have restricted access to international capital markets due to underdeveloped financial systems and capital controls. This affects the effectiveness of government spending through several channels.

• Fiscal Multiplier Dynamics: Government spending financed externally can have mixed effects on the fiscal multiplier. While it reduces the crowding-out effect by lowering domestic interest rates, it also leads to real appreciation, which negatively affects traded output and thus reduces the multiplier.

• Twin-Deficit Hypothesis: The twin-deficit hypothesis—linking fiscal deficits to current account deficits—holds more strongly in developing countries when deficits are financed externally. This is due to the real appreciation effect, which reduces traded output and increases current account deficits.

• Exchange Rate Regime: A fixed exchange rate regime leads to a larger fiscal multiplier compared to a flexible one. This is because it dampens real appreciation, thereby reducing the negative impact on traded output.

• Home Bias in Government Purchases: Higher home bias in government spending (i.e., more spending on non-traded goods) leads to a smaller fiscal multiplier. This is because increased demand for non-traded goods is less leaky to foreign production.

• Sectoral Rigidities: More rigidities in production factors (labor and capital) across sectors increase the fiscal multiplier. These rigidities elevate factor prices, thereby increasing income and consumption.

• Hand-to-Mouth Households: A larger fraction of hand-to-mouth households, who consume all their disposable income, increases the fiscal multiplier. This is due to their immediate and full response to government spending increases.

• Capital Account Openness: The effect of capital account openness on the fiscal multiplier depends on the degree of external financing. When external financing is low, more open capital accounts lead to higher real appreciation, suppressing the multiplier. When external financing is high, more open capital accounts allow for reduced foreign borrowing, thereby increasing the multiplier.

Key Information

• Model Features: The model includes two sectors (traded and non-traded), a CES consumption basket, price and wage rigidities, and financial frictions such as a debt-elastic country risk premium and portfolio adjustment costs.

• Empirical Relevance: The paper references empirical data showing that external financing of government debt is significant in developing countries, with Latin American countries averaging 60% of total government debt in 2005.

• Policy Implications: The study suggests that fiscal policy in developing countries is more effective under fixed exchange rate regimes and when government spending is home-biased. It also highlights the importance of capital account openness in shaping the fiscal multiplier depending on the external financing mix.

• Theoretical Contribution: The paper provides a theoretical explanation for the twin-deficit hypothesis in developing countries, showing how external financing and real exchange rate appreciation drive the co-movement between fiscal and current account deficits.

Factors Affecting Government Spending Effects

• Composition of Government Purchases: Spending on non-traded goods leads to a smaller fiscal multiplier due to reduced leakage to foreign production.

• Sectoral Rigidities: Increased rigidity in production factors raises the fiscal multiplier by increasing factor prices and thus income and consumption.

• Fraction of Hand-to-Mouth Households: A higher proportion of hand-to-mouth households increases the fiscal multiplier due to their immediate consumption response.

• Exchange Rate Regime: Fixed exchange rates result in a larger fiscal multiplier as they reduce real appreciation and its negative impact on traded output.

• Capital Account Openness: Its effect on the fiscal multiplier depends on the level of external financing. With high external financing, a more open capital account can enhance the multiplier by reducing foreign borrowing and its appreciation effects.

• External Financing: The paper emphasizes that external financing has a dual effect: it reduces crowding-out but increases real appreciation, which dampens the fiscal multiplier.

Conclusion

The paper concludes that government spending in developing countries is more expansionary under limited capital mobility when financed internally or with a high degree of home bias. However, external financing introduces real appreciation, which negatively affects traded output and lowers the fiscal multiplier. The twin-deficit hypothesis is explained through the real exchange rate channel, and the model provides a comprehensive framework to understand the interactions between fiscal, monetary, and reserve policies in the context of capital account openness and structural features of developing economies.