TY  - JOUR
AU  - Durlauf,Steven N.
AU  - Staiger,Robert W.
TI  - Compositional Effects of Government Spending in a Two-Country Two-SectorProduction Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2543
PY  - 1988
Y2  - March 1988
UR  - http://www.nber.org/papers/w2543
L1  - http://www.nber.org/papers/w2543.pdf
N1  - Author contact info:
Steven N. Durlauf
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706-1393
Tel: 608/263-3859
Fax: 608/262-2033
E-Mail: sdurlauf@ssc.wisc.edu

Robert W. Staiger
Department of Economics
Stanford University
Landau Economics Building
579 Serra Mall
Stanford, CA  94305-6072
Tel: 650/723-0533
Fax: 650/725-5702
E-Mail: rstaiger@stanford.edu
AB  - This paper explores the impact of changes in the composition of government spending on the level of relative prices, interest rates and the current account in a two country, two period Heckacher-Ohlii model. We show that shifting the composition of government spending affects macroeconomic variables according to the relative factor intensities of tradeable and non-tradeable goods. Adjustments of composition towards non-tradeables will raise (lower) world interest rates if non-tradeables are capital (labor) intensive. The announcement of a future shift towards non-tradeables will induce a current account deficit (surplus) if future interest rates are expected to increase (decrease). The introduction of production thus places restrictions on the co-movements of fiscal policy and macroeconomic variables beyond those generated by preferences.
ER  -