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The Impact of Structural Policies on External Accounts in Infinite‐horizon and Finite‐horizon Models
Author(s) -
Vogel Lukas
Publication year - 2013
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12023
Subject(s) - economics , devaluation , debt , position (finance) , small open economy , horizon , consolidation (business) , macroeconomics , monetary economics , fiscal policy , asset (computer security) , consumption (sociology) , monetary policy , finance , exchange rate , social science , physics , astronomy , sociology , computer security , computer science
The paper uses QUEST III to compare the impact of product market reform, labor market reform, and fiscal devaluation on economic activity and external accounts in infinite‐horizon and finite‐horizon versions of the model for a small open economy in monetary union with tradable and non‐tradable sectors. The impact of structural policies on external positions tends to be stronger and more persistent, but also more diverse in the finite‐horizon specification because of the impact of structural reforms on financial wealth and its transmission to consumption demand in the finite‐horizon setting. The improvement in the net foreign asset position tends to be stronger if structural reforms are accompanied by fiscal consolidation and if countries start with high pre‐reform levels of net foreign debt.