Working Paper

Capital Mobility and the Effectiveness of Fiscal Policy in Open Economies


  • Pierdzioch
  • C.
Publication Date

This paper uses a dynamic general equilibrium two-country optimizing 'new-open economy macroeconomics' model to analyze the consequences of international capital mobility for the effectiveness of fiscal policy. Conventional wisdom suggests that higher capital mobility diminishes the effectiveness of fiscal policy. The model laid out in this paper provides an example that a higher degree of capital mobility can also increase the effectiveness of fiscal policy. This tends to be the case if the stance of monetary policy can be described by means of a simple monetary policy rule.


JEL Classification
F36, F41

Key Words

  • capital mobility
  • Financial market integration
  • fiscal policy
  • Fiskalpolitik
  • monetary policy