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Alena Kimakova
''Does globalization enhance the role of fiscal policy in economic stabilization?''
( 2006, Vol. 8 No.11 )
This note proposes a research agenda for studying the implications of enhanced capital mobility and limited de facto exchange rate flexibility for the conduct of macroeconomic stabilization. The ineffectiveness of monetary policy under such conditions suggests a greater role for fiscal policy as a stabilization instrument. The paper outlines a methodology for empirically verifying whether financially more open economies with a preference for exchange rate regimes with limited de facto flexibility implement a more counter-cyclical fiscal policy. Empirical testing of this hypothesis at the cross-national level is nonetheless hindered by data availability. Statistics on cyclically adjusted budget balances are typically available for OECD member countries only, but this sample offers little variation in terms of de facto exchange rate regime choice.
JEL: H1 - Structure and Scope of Government: General
E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
Manuscript Received : Jun 13 2006 Manuscript Accepted : Jul 25 2006

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