## _wp0767

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---

### Introduction and research question
- Governments face trade-offs in fiscal policy between short-run impact and long-run sustainability, financing methods, and composition of public expenditures.
- Key trade-off analyzed: productive public infrastructure (public capital) versus utility-enhancing public consumption.
- Framework: New Keynesian two-country model with imperfect competition and nominal rigidities (NOEM framework).
- Model novelty claims:
  - Introduces productive public capital into a NOEM model with imperfect competition, nominal rigidities, and two countries.
  - Allows analysis of interactions between public infrastructure spending and market distortions, current account, exchange rate, and foreign spillovers.
- Model contrasts with prior literature (examples given: Aschauer 1989; Barro 1990; Turnovsky and Fisher 1995; Betts and Devereux 2000).

### Principal findings and welfare implications
- Permanent increase in domestic public infrastructure financed by a reduction in public consumption:
  - Likely to be welfare enhancing for domestic residents provided:
    - productivity of public capital is not too low, and
    - weight of public consumption (relative to private consumption) in private utility not too high.
  - Negative net welfare impact cannot be ruled out.
  - Policy implication: governments should account for household preferences over public provision in deciding spending composition and evaluate expected productivity of infrastructure projects.
- International spillovers:
  - Short-run foreign welfare spillover likely negative (foreign residents face increased global demand with relatively underdeveloped foreign public infrastructure).
  - Long-run foreign residents can enjoy welfare gains.
  - Domestic policy change can incentivize foreign reallocation toward productive public capital, potentially creating a virtuous global technological cycle.
- Temporary increase in public infrastructure (financed by lower public consumption):
  - Likely reduces domestic welfare because temporary productivity gains may not offset utility loss from reduced public consumption.
  - Policy implication: ensure fiscal resources to maintain increased capital stock in medium and long run before embarking on large projects.

### Model structure — agents, price setting, and key equations
- Two-country NOEM model with imperfect competition and Calvo-style nominal rigidities.
- Country indexing and population:
  - Firms and households indexed by z ∈ ]1,0[.
  - Fraction n of households and firms located in the domestic country; n−1 located in the foreign country.
- Pricing regime: Producer Currency Pricing (PCP) only.
- Representative preserved household and government equations (as in source):
  - Domestic utility (as in source): ]log 2 )( )( 1 [log 2 1 C t s s s s ts ts t G z l P M C U φ ε χ β ε + − − += − ∞ = − ∑.
  - Composite private consumption aggregator (equation (2)): 1 1 1 0 ])([ − − ∫ = θ θ θ θ dzzcC tt.
  - Price index and exchange rate notation preserved (equation (3) with p_t(z), p_t^*(z), and E).
  - Domestic budget constraint (equation (4) preserved): tttttttttt PCPzlwMDDMτπδ−+−++=+ −− 11.
  - First-order conditions preserved:
    - Euler (domestic) (equation (6)): ttttt CPCPβδ= ++11.
    - Euler (foreign) (equation (7)): tttt ECPECP *1 *1 * * βδ= +++.
    - Labor supply domestic (equation (8)): tt t t PC w l =.
    - Money demand domestic (equation (10)): ε δ χ 1 ) 1 ( t t t t C P M − = .
  - Government consolidated per-capita budget constraint (equation (12)): t tt tt P MM G 1− − += τ.
  - Government spending decomposition: G_t = G_t^I + G_t^C.
  - Public capital accumulation (equation (17)): I_t G t G t G K K + − = + )1( 1 λ.
  - Production function of firm z (equation (16)): α ))(()( 0 G t t t KK zl zy + =.
  - Nominal marginal cost (equation (18)): α )( )( 0 G t t t KK w z MC + =.
  - Profits (equation (19)): )()()()( zlw zy zp z tttt − = π.
  - Consolidated domestic budget constraint (equation (20)): tttttttttt G P C P z y z p D D − − + = − )()( 1 δ.
  - Demand curve for differentiated good z (equation (22)): )() )( ()( W t W t t t t G C P z p z y += − θ.
  - World private consumption demand (equation (23)): * )1( tt W t C n n C C − +=.

### Price setting, steady state, and calibration
- Firms face Calvo (1983) nominal rigidities with probability of not revising prices equal to γ, where γ is set such that γ−1 firms reset prices each period.
- Pricing under flexible prices (equation (24)): )(1)(zMCzp tt −= θ θ.
- Under Calvo pricing firms maximize discounted expected profits (equation (25) preserved).
- Model log-linearized around a symmetric steady state; special case: initial net foreign assets and government capital spending are both zero.
- Initial steady-state normalizations and values (as presented in the source):
  - 1 * 00 ==KK and 5.0=n.
  - Initial total government spending (public consumption to output) is set to 0.2, implying 204.0 * 0 * * 000 ==== CC GGGG; 816.0 * 00 ==CC; and 02.1 * 00 ==YY (preserved verbatim from source).
- Parameterization (section III):
  - θ = 6 (implying a 20 percent mark-up in steady state).
  - β = 1/1.05.
  - γ = 0.5 (average delay between price adjustments of two periods).
  - ε = 9.
  - φ = 4.0 = φ (utility weight of public consumption in benchmark).
  - λ = 0.10 (depreciation rate of public capital).
  - α experimented values: 05.0 = α and 1.0 = α.
  - Persistency for permanent shocks: ρ = 1 in equations (14) and (15); for temporary shocks ρ = 0.8.
  - Model solved using the Klein (2000) and McCallum (2001) algorithm.

### Experiments and quantitative results
- Permanent one percentage point shift in government spending composition (section IV):
  - Shock: permanent one percentage increase in home government infrastructure investment relative to initial output and simultaneous one percentage decrease in home government consumption relative to initial output; total government spending remains constant domestically and in the foreign country.
  - Domestic effects:
    - Domestic output increases gradually as public capital accumulates.
    - Domestic private consumption increases immediately; short-run current account deficit results.
    - Long run: domestic output must increase more than consumption to service accumulated external debt.
    - Higher α amplifies expansion: more productive public capital → higher domestic output and higher consumption.
    - Employment response non-monotonic: employment tends to fall in the short run and rise in the medium and long run; higher α magnifies short-run employment fall but raises long-run employment.
    - Mechanisms: "pure public capital productivity" effect reduces labor needed for given output; higher public capital lowers domestic marginal costs and, given nominal rigidities, raises short-run profits and redistributed consumption.
  - Open economy effects:
    - Domestic currency appreciates (fall in the price of the foreign currency in domestic terms) via a money demand effect from higher domestic consumption.
    - Foreign output increases on impact (expenditure boosting effect), though may slightly decline in the long run; foreign private consumption displays an opposite short-run response.
    - Expenditure switching is limited because the exchange rate effect is small in the model.
  - Welfare:
    - Momentary domestic utility change expression preserved (equation (33) as presented): C t t t G l l C U ˆ ˆ ˆ 2 0 φ+−=Δ.
    - Domestic welfare more likely to improve the higher α and the lower φ; if φ is high or α is low a negative welfare impact cannot be ruled out.
    - Foreign welfare: short-run reduction (stronger when α is higher); medium and long-run foreign welfare can recover or improve.
- Temporary shift in government spending composition (section V):
  - Policy experiment: temporary shift with persistency parameter ρ = 0.8.
  - Dynamics:
    - After about 40 periods the accumulated public capital from temporary higher investment is almost completely depleted; increase in productivity is temporary.
    - Temporary domestic output rise (more pronounced for higher α) and temporary consumption increase; medium-run current account surplus as households save part of temporary income.
    - Domestic residents accumulate a permanently higher amount of bonds, yielding a permanent improvement in net worth and a higher steady-state private consumption.
    - Foreign variable responses qualitatively similar but quantitatively smaller.
  - Welfare:
    - Temporary shift can reduce domestic welfare in the short run even when α = 1.0.
    - In the long run domestic welfare increases above the pre-shock level due to higher wealth and the ability to reduce labor while increasing private consumption.
    - Foreign welfare is negative in short and long run but briefly positive in the medium run; overall foreign welfare loss is more limited than domestic welfare loss.

### Policy implications and recommendations
- Before reallocating from public consumption to public infrastructure:
  - Evaluate household preferences regarding public consumption versus private consumption.
  - Carefully evaluate expected productivity gains of planned infrastructure on private-sector productivity.
  - Ensure fiscal resources to maintain increased public capital stock in the medium and long run to avoid welfare losses from temporary shifts.
- Recognize potential cross-border effects:
  - Domestic infrastructure expansion can cause short-run foreign welfare losses and long-run gains.
  - Domestic shifts may generate incentives for foreign countries to increase productive public capital, potentially producing positive global spillovers.

### Conclusions and suggested extensions
- Shifts in public spending composition toward productivity-enhancing public infrastructures have important positive and welfare implications domestically and internationally, but effects depend on:
  - Permanence of the shift (permanent vs temporary).
  - Productivity of public capital α.
  - Weight of public consumption in private utility φ.
- Permanent reallocation toward public capital is likely to increase domestic utility if α is not too low and φ is not too high; temporary reallocation is likely to reduce domestic welfare.
- Domestic reallocation can generate negative short-run international welfare spillovers, creating incentives for foreign countries to also increase productive public capital.
- Suggested extensions for future research (as stated in the source):
  - Introduction of private capital in the production function of private firms.
  - Analysis of asymmetry between domestic and foreign countries (for example, introducing home bias in private and public consumption).

*Source: _wp0767 - References (excerpts and equations preserved exactly from the provided content).*

### References..............................................................................................................

### _wp0767 - References...................................................................................................................

### Introduction and research question
- Governments face trade-offs in fiscal policy between short-run impact and long-run sustainability, financing methods, and composition of public expenditures.
- Key trade-off analyzed: productive public infrastructure (public capital) versus utility-enhancing public consumption.
- Paper situates analysis in a New Keynesian two-country model with imperfect competition and nominal rigidities (NOEM framework).
- Model novelty claims:
  - Introduces productive public capital into a NOEM model with imperfect competition, nominal rigidities, and two countries.
  - Allows analysis of interactions between public infrastructure spending and market distortions, current account, exchange rate, and foreign spillovers.
- Model contrasts with prior literature (examples given: Aschauer 1989; Barro 1990; Turnovsky and Fisher 1995; Betts and Devereux 2000).

### Principal findings and welfare implications (bulleted)
- Permanent increase in domestic public infrastructure financed by a reduction in public consumption:
  - Likely to be welfare enhancing for domestic residents provided:
    - productivity of public capital is not too low, and
    - weight of public consumption (relative to private consumption) in private utility not too high.
  - Negative net welfare impact cannot be ruled out.
  - Policy implication: governments should account for household preferences over public provision in deciding spending composition and evaluate expected productivity of infrastructure projects.
- International spillovers:
  - Short-run foreign welfare spillover likely negative (foreign residents face increased global demand with relatively underdeveloped foreign public infrastructure).
  - Long-run foreign residents can enjoy welfare gains.
  - Domestic policy change can incentivize foreign reallocation toward productive public capital, potentially creating a virtuous global technological cycle.
- Temporary increase in public infrastructure (financed by lower public consumption):
  - Likely reduces domestic welfare because temporary productivity gains may not offset utility loss from reduced public consumption.
  - Policy implication: ensure fiscal resources to maintain increased capital stock in medium and long run before embarking on large projects.

### Model structure — overview of agents and key assumptions
- Framework: Two-country NOEM model with imperfect competition and nominal rigidities (Calvo-style staggered price setting).
- Country indexing and population:
  - Firms and households indexed by z ∈ ]1,0[.
  - Fraction n of households and firms located in the domestic country; n−1 located in the foreign country.
- Pricing regime: Producer Currency Pricing (PCP) only (LCP excluded in the analysis to focus on government spending composition).
- Main distinctions from Betts and Devereux (2000):
  - Introduction of productive public capital.
  - Public consumption affects private utility.
  - Calvo (1983) staggered pricing rather than one-period fixed prices.

### Households — preferences, constraints, and first-order conditions
- Domestic utility (equation form preserved):
  - ]log 2 )( )( 1 [log 2 1 C t s s s s ts ts t G z l P M C U φ ε χ β ε + − − += − ∞ = − ∑  (as in source).
- Parameters and exact notations preserved from source:
  - Discount factor: 10<<β.
  - ε: inverse of the consumption elasticity of money demand; 0>ε.
  - χ and φ: positive parameters.
- Composite private consumption aggregator (preserved):
  - 1 1 1 0 ])([ − − ∫ = θ θ θ θ dzzcC tt  (equation (2) in source).
- Price index and exchange rate notation preserved:
  - Equation (3) as given, with p_t(z), p_t^*(z), and E defined as price of foreign currency in domestic currency.
- Budget constraint (domestic):
  - tttttttttt PCPzlwMDDMτπδ−+−++=+ −− 11  (equation (4) preserved).
- Foreign household budget constraint notation preserved with asterisks (equation (5)).
- First-order conditions (Euler, labor supply, money demand) preserved exactly:
  - Euler (domestic): ttttt CPCPβδ= ++11  (equation (6)).
  - Euler (foreign): tttt ECPECP *1 *1 * * βδ= +++  (equation (7)).
  - Labor supply domestic: tt t t PC w l =  (equation (8)).
  - Labor supply foreign: ** * * tt t t PC w l =  (equation (9)).
  - Money demand domestic: ε δ χ 1 ) 1 ( t t t t C P M − =  (equation (10)).
  - Money demand foreign: ε δ χ 1 1 * * * * ) 1 ( t t t t E E C P M t t t + − =  (equation (11)).

### Government — fiscal accounting and spending processes
- Government consolidated per-capita budget constraint (preserved):
  - t tt tt P MM G 1− − += τ  (equation (12) in source).
- Decomposition of government spending:
  - G_t = G_t^I + G_t^C (I for public capital, C for public consumption).
- Government consumption and public capital aggregators:
  - Government consumption index: 1 1 1 0 ])([ − − ∫ = θ θ θ θ dzzgG CC t t  (equation (13)).
- Fiscal stochastic processes (first-order autoregressive forms, hat denotes percentage deviations from steady state):
  - I_t^ = ρ_I I_{t−1}^ + σ_I  (equation (14) in source; preserved notation).
  - C_t^ = ρ_C C_{t−1}^ + σ_C  (equation (15) in source; preserved notation).
- Fiscal shock persistence parameter: ρ; unpredictable shifts: I σ and C σ (notation preserved).

### Private firms — technology, public capital accumulation, and profits
- Production function of firm z (preserved):
  - α ))(()( 0 G t t t KK zl zy + =  (equation (16) in source).
  - 0 K: initial endowment of public capital (natural resources); G K: stock of public capital provided by government.
- Public capital accumulation (preserved):
  - I_t G t G t G K K + − = + )1( 1 λ  (equation (17) in source); λ is depreciation rate.
- Note on limitation:
  - Model abstracts from private capital in production (explicitly acknowledged as a shortcoming).
- Nominal marginal cost (preserved):
  - α )( )( 0 G t t t KK w z MC + =  (equation (18)).
- Profits (preserved):
  - )()()()( zlw zy zp z tttt − = π  (equation (19)).
- Consolidated budget constraint (domestic) derived from household and government budgets (preserved):
  - tttttttttt G P C P z y z p D D − − + = − )()( 1 δ  (equation (20)).
- Foreign consolidated budget constraint notation preserved (equation (21)) with global asset-market-clearing 0)1( * = − + tt D n n D.
- Demand curve for differentiated good z (preserved):
  - )() )( ()( W t W t t t t G C P z p z y += − θ  (equation (22)).
- World private consumption demand (preserved):
  - * )1( tt W t C n n C C − +=  (equation (23)).

### Policy implications and recommendations (bulleted)
- Before reallocating from public consumption to public infrastructure:
  - Evaluate household preferences regarding public consumption versus private consumption.
  - Carefully evaluate expected productivity gains of planned infrastructure on private-sector productivity.
  - Ensure fiscal resources to maintain increased public capital stock in the medium and long run to avoid welfare losses from temporary shifts.
- Recognize potential cross-border effects:
  - Domestic infrastructure expansion can cause short-run foreign welfare losses and long-run gains.
  - Domestic shifts may generate incentives for foreign countries to increase productive public capital, potentially producing positive global spillovers.

*Source: _wp0767 - References (excerpts and equations preserved exactly from the provided content).*

### Introduction of private capital is left for future research. If public and private capital are complements in

### _wp0767 - Introduction of private capital is left for future research. If public and private capital are complements in

### Model setup and price setting
- Firms face Calvo (1983) nominal rigidities with probability of not revising prices equal to γ, where γ is set such that γ−1 firms reset prices each period.
- Pricing under flexible prices would imply: )(1)(zMCzp tt −= θ θ (equation (24)).
- Under Calvo pricing, firms maximize discounted expected profits: ∑∞ s=−ts sst ts t zp zzV t )()(max , )( πζγ (equation (25)), where ζst is the domestic discount factor defined as 1 , )1( − = +Π= j t sjst Rζ.
- The resulting price-setting rule is given by the long expression in equation (26) (as presented in the source).

### Initial steady state and normalization
- The model is log-linearized around a symmetric steady state with constant exogenous variables.
- Special case: initial net foreign assets and government capital spending are both zero.
- Government consumption is positive and equal in both countries at the initial steady state; initial private consumption is equal in both countries.
- Steady-state relationships derived (equations (27)-(30)) relate steady-state output, labor supply, and consumption; 0 subscripts denote the initial steady state.
- Initial steady-state equalities under normalization include: 1 * 00 ==KK and 5.0=n.
- Initial total government spending (public consumption to output) is set to 0.2, implying 204.0 * 0 * * 000 ==== CC GGGG; 816.0 * 00 ==CC; and 02.1 * 00 ==YY (as presented in the source).

### Parameterization (section III)
- Elasticity of substitution between differentiated goods θ is set equal to 6, implying a 20 percent mark-up of prices over marginal costs in the steady state.
- Subjective discount factor β is set at 1/1.05.
- Price stickiness parameter γ is assumed to be equal to 0.5, implying an average delay between price adjustments of two periods.
- Consumption elasticity of money demand parameter ε is fixed at 9.
- Utility weight of public consumption φ is set to 4.0 = φ in the benchmark (interpretation: utility from public consumption is low relative to private consumption).
- Depreciation rate of public capital λ is assumed to be 0.10.
- Two values for productivity of public capital α are considered in experiments: 05.0 = α and 1.0 = α.
- For permanent shocks the persistency parameter ρ is set to 1 in equations (14) and (15); for temporary shocks ρ is set to 0.8.
- The model is simulated using the Klein (2000) and McCallum (2001) algorithm.

### Permanent one percentage point shift in government spending composition (section IV)
- Shock: permanent one percentage increase in home government infrastructure investment relative to initial output and simultaneous one percentage decrease in home government consumption relative to initial output; total government spending remains constant domestically and in the foreign country.
- Main domestic effects:
  - Domestic output increases gradually (boom) as public capital accumulates.
  - Domestic private consumption increases immediately as households smooth consumption intertemporally; short-run current account deficit results.
  - Long run: domestic output must increase more than consumption to service accumulated external debt.
  - Higher α amplifies the expansion: more productive public capital → higher domestic output and higher consumption.
  - Non-monotonic impact on employment: employment tends to fall in the short run and rise in the medium and long run; higher α magnifies short-run employment fall but raises long-run employment.
  - Mechanisms: "pure public capital productivity" effect reduces labor needed for given output; higher public capital lowers domestic marginal costs and, given nominal rigidities, raises short-run profits and redistributed consumption.
- Open economy effects:
  - Domestic currency appreciates (fall in the price of the foreign currency in domestic terms) via a money demand effect from higher domestic consumption.
  - Foreign output increases on impact (expenditure boosting effect), though may slightly decline in the long run; foreign private consumption displays an opposite short-run response.
  - Expenditure switching is limited because the exchange rate effect is small in the model.
- Welfare effects:
  - Momentary domestic utility change: ΔUt = Ĉt − φ Ĝt + l̂t − 2? (presented in the source as C t t t G l l C U ˆ ˆ ˆ 2 0 φ+−=Δ (equation (33) — preserved as presented).
  - Domestic welfare: shift toward public capital is more likely to be welfare enhancing for domestic households the higher α and the lower φ; if φ is high or α is low a negative welfare impact cannot be ruled out.
  - Foreign welfare: domestic policy causes a short-run reduction in foreign welfare (stronger when α is higher); medium and long-run foreign welfare can recover or improve as external asset accumulation and terms-of-trade effects play out.
- Policy implication (from analysis): domestic reallocation toward public capital can generate incentives for foreign countries to reallocate to productive public capital as well, possibly triggering a virtuous global technological cycle.

### Temporary shift in government spending composition (section V)
- Policy experiment: temporary shift with persistency parameter ρ = 0.8.
- Dynamics:
  - After about 40 periods the accumulated public capital from temporary higher investment is almost completely depleted; increase in productivity is temporary.
  - Temporary domestic output rise (more pronounced for higher α) and temporary consumption increase; medium-run current account surplus as households save part of temporary income.
  - Domestic residents accumulate a permanently higher amount of bonds (Figure 2(f)), yielding a permanent improvement in net worth and a higher steady-state private consumption.
  - Foreign variable responses qualitatively similar but quantitatively smaller than the permanent case.
  - Foreign residents reduce private consumption and leisure in the long run (reduced wealth), but may temporarily increase them in the medium run.
- Welfare:
  - Temporary shift can reduce domestic welfare in the short run even when α = 1.0, because limited expansion of production possibilities cannot compensate immediate loss of public consumption.
  - In the long run domestic welfare increases above the pre-shock level due to higher wealth and the ability to reduce labor while increasing private consumption.
  - Foreign welfare is negative in short and long run but briefly positive in the medium run; overall foreign welfare loss is more limited than domestic welfare loss because foreigners do not lose publicly provided consumption.
- Policy implication: governments should secure fiscal resources to maintain higher infrastructure capital before undertaking large temporary public infrastructure projects, otherwise temporary productivity gains may not offset welfare loss from reduced public consumption.

### Conclusions (section VI)
- Shifts in public spending composition toward productivity-enhancing public infrastructures have important positive and welfare implications domestically and internationally, but effects depend on:
  - Permanence of the shift (permanent vs temporary).
  - Productivity of public capital α.
  - Weight of public consumption in private utility φ.
- Permanent reallocation toward public capital is likely to increase domestic utility if α is not too low and φ is not too high; temporary reallocation is likely to reduce domestic welfare.
- Domestic reallocation can generate negative short-run international welfare spillovers, creating incentives for foreign countries to also increase productive public capital.
- Suggested extensions for future research (as stated in the source):
  - Introduction of private capital in the production function of private firms.
  - Analysis of asymmetry between domestic and foreign countries (for example, introducing home bias in private and public consumption).

*Italic: Source — content unit from the IMF working paper PDF as supplied in the source content.*

### REFERENCES

### REFERENCES

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- Tille, Cedric, 2001, “The Role of Consumption Substitutability in the International Transmission of Shocks,” Journal of International Economics 53, pp. 421–444.
- Hau, Harald, 2000, “Exchange Rate Determination: the Role of Factor Price Rigidities and Nontradables,” Journal of International Economics 50, pp. 421–447.
- Sutherland, Alan, 1996, “Financial Market Integration and Macroeconomic Volatility,” Scandinavian Journal of Economics 98, pp. 521–539.
- Sarno, Lucio, 2001, “Toward a New Paradigm in Open Economy Modeling: Where Do We    Stand?,” Federal Reserve Bank of St. Louis Review 83, pp. 21–36.
- Devereux, Michael B., and Charles Engel, 2002, “Exchange Rate Pass-Through, Exchange Rate Volatility, and Exchange Rate Disconnect,” Journal of Monetary Economics 49, pp. 913–940.

### Macroeconomic interdependence, welfare, and market completeness
- Corsetti, Giancarlo, and Paolo Pesenti, 2001, “Welfare and Macroeconomic Interdependence,” Quarterly Journal of Economics 116, pp. 421–446.
- Ghironi, Fabio, 2006, “Macroeconomic Interdependence under Incomplete Markets,” Journal of International Economics, pp. 76, 428–450.
- Ganelli, Giovanni, 2005, “The New Open Economy Macroeconomics of Government Debt,” Journal of International Economics 65, pp. 167–184.
- Linnemann, Ludger, and Andreas Schabert, A, 2006, “Productive Government Expenditure in Monetary Business Cycle Models,” Scottish Journal of Political Economy 53, pp. 28–46.
- Roche, Maurice J., 1996, “Government Spending and the International Business Cycle,” Canadian Journal of Economics 29, pp. 865–884.
- Riojas, (sic) Felix K., 1999, “Productiveness and Welfare Implications of Public Infrastructure: a Dynamic Two-Sector General Equilibrium Analysis,” Journal of Development Economics 58, pp. 387–404.

### Methods, technical contributions, and software
- Calvo, Guillermo A., 1983, “Staggered Prices in a Utility Maximizing Framework,” Journal of Monetary Economics 12, pp. 383–398.
- Klein, Paul, 2000, “Using the Generalized Schur Form to Solve a Multivariate Linear Rational Expectations Model,” Journal of Economic Dynamics and Control 24, pp. 1405–1423.
- McCallum, Bennett, 2001, Software for RE Analysis. Computer software available at http://wpweb2.tepper.cmu.edu/faculty/mccallum/research.html

### Other relevant contributions
- Calvo, Guillermo A., 1983, “Staggered Prices in a Utility Maximizing Framework,” Journal of Monetary Economics 12, pp. 383–398.
- Benigno, Gianluca, and Pierpaolo Benigno, 2003, “Price Stability in Open Economy,” Review of Economic Studies 70, pp. 743–764.
- Pierdzioch, Christian, 2004, “Capital Mobility and the Effectiveness of Fiscal Policy in Open Economies,” Journal of Macroeconomics 26, pp. 465–79.
- Tervala, Juha 2006, “Productive Government Spending and the International Transmission of Fiscal Policy,” HECER Discussion Paper 120.
- Betts, Caroline, and Michael B. Devereux, 2001, “The International Effects of Monetary and Fiscal Policy in a Two-Country Model,” in Money, Capital Mobility and Trade: Essays in Honor of Robert Mundell, Calvo, G., Dornbusch, R. and Obstfeld, M. (eds.). MIT Press, Cambridge.

*Source: _wp0767 - REFERENCES*

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