Evaluating the effects of fiscal contractionary policies in emerging economies and the UK

Omolo, Martha Anyango (2018). Evaluating the effects of fiscal contractionary policies in emerging economies and the UK. University of Birmingham. Ph.D.

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Abstract

This thesis presents three chapters on the macroeconomic effects of fiscal contractionary policies in emerging economies and UK in the aftermath of the 2008 financial crisis using dynamic stochastic general equilibrium models. The first chapter assesses the dynamic effects of fiscal contractionary adjustments on the exchange rate movements in emerging economies to establish which movements are associated with expansionary fiscal contractionary episodes. The results show that exchange rate depreciations are more likely to support fiscal consolidations in emerging economies. The second chapter draws on the Leeper, Plante and Traum (2010) framework to analyse the effects of austerity measures on public debt and the economy in the UK when households are heterogeneous. The findings show that austerity measures reduce government debt-to-GDP but initially contract the economy. Reduction in government consumption results in the largest government debt-to- GDP reduction while transfers shocks are better suited for expansionary fiscal contractionary episodes. The third chapter investigates the effects of the interactions between fiscal contractionary and unconventional monetary policies on the movement of long term interest rates in the UK. The findings show that, spending based fiscal contractionary and unconventional monetary policies reduce the long term interest rates and spur economic expansion.

Type of Work:

Thesis (Doctorates > Ph.D.)

Award Type:

Doctorates > Ph.D.

Supervisor(s):