Labor‐Market Search, Financial Market Integration, and the Fiscal Multiplier

Corresponding Author

Universidade do Porto, R. Roberto Frias, Portugal

Çenesiz: CEMPRE, Faculdade de Economia, Universidade do Porto, R. Roberto Frias, 4200‐464 Porto, Portugal. Tel: +351‐22‐5571100; Fax: +351‐22‐5505050; E‐mail:

acenesiz@fep.up.pt

. Pierdzioch: Department of Economics, Saarland University, POB 15 11 50, 66041 Saarbruecken, Germany. Tel: +49‐681‐302‐58195; Fax: +49‐681‐302‐58193; E‐mail:

c.pierdzioch@mx.uni‐saarland.de

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Christian Pierdzioch

Corresponding Author

Department of Economics, Saarland University, Germany

Çenesiz: CEMPRE, Faculdade de Economia, Universidade do Porto, R. Roberto Frias, 4200‐464 Porto, Portugal. Tel: +351‐22‐5571100; Fax: +351‐22‐5505050; E‐mail:

acenesiz@fep.up.pt

. Pierdzioch: Department of Economics, Saarland University, POB 15 11 50, 66041 Saarbruecken, Germany. Tel: +49‐681‐302‐58195; Fax: +49‐681‐302‐58193; E‐mail:

c.pierdzioch@mx.uni‐saarland.de

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M. Alper Çenesiz

Corresponding Author

Universidade do Porto, R. Roberto Frias, Portugal

Çenesiz: CEMPRE, Faculdade de Economia, Universidade do Porto, R. Roberto Frias, 4200‐464 Porto, Portugal. Tel: +351‐22‐5571100; Fax: +351‐22‐5505050; E‐mail:

acenesiz@fep.up.pt

. Pierdzioch: Department of Economics, Saarland University, POB 15 11 50, 66041 Saarbruecken, Germany. Tel: +49‐681‐302‐58195; Fax: +49‐681‐302‐58193; E‐mail:

c.pierdzioch@mx.uni‐saarland.de

.Search for more papers by this author

Christian Pierdzioch

Corresponding Author

Department of Economics, Saarland University, Germany

Çenesiz: CEMPRE, Faculdade de Economia, Universidade do Porto, R. Roberto Frias, 4200‐464 Porto, Portugal. Tel: +351‐22‐5571100; Fax: +351‐22‐5505050; E‐mail:

acenesiz@fep.up.pt

. Pierdzioch: Department of Economics, Saarland University, POB 15 11 50, 66041 Saarbruecken, Germany. Tel: +49‐681‐302‐58195; Fax: +49‐681‐302‐58193; E‐mail:

c.pierdzioch@mx.uni‐saarland.de

.Search for more papers by this author

First published: 27 October 2009

https://doi.org/10.1111/j.1467-9396.2008.00796.x

Cited by: 1

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Abstract

We used a two‐country optimizing “new‐open‐economy macroeconomics” model to analyze the implications of financial market integration for the fiscal multiplier. The fiscal multiplier measures the accumulated effect of fiscal policy on output. Our model features a labor‐market friction in the form of labor‐market search. The conventional wisdom derived from the basic textbook version of the classic Mundell–Fleming model has been that financial market integration diminishes the fiscal multiplier. We show that labor‐market search implies that financial market integration should increase rather than decrease the fiscal multiplier.

Citing Literature

Volume17, Issue5

November 2009

Pages 986-1000