1 option
Ramsey-Optimal Fiscal Spending and Reserve Accumulation Policies under Volatile Aid / Ioana Moldovan, Shu-Chun Yang, Luis-Felipe Zanna.
- Format:
- Book
- Government document
- Author/Creator:
- Moldovan, Ioana.
- Series:
- IMF Working Papers; Working Paper ; No. 2025/154
- IMF Working Papers
- Language:
- English
- Physical Description:
- 1 online resource (63 pages)
- Place of Publication:
- Washington, D.C. : International Monetary Fund, 2025.
- Summary:
- This paper examines Ramsey-optimal policies related to fiscal spending and international reserve accumulation in response to volatile aid flows in Low-Income Countries (LICs). We develop a real Dynamic Stochastic General Equilibrium (DSGE) model of a small open economy, incorporating government transfers and public investment as fiscal spending components, along with two prominent characteristics of LICs: Dutch disease (DD) externalities and financially constrained households. Driven by considerations of precautionary saving, Ramsey-optimal policies involve partial reserve accumulation and partial fiscal spending of aid. Stronger DD externalities necessitate greater reserve ac- cumulation to stabilize future output, thereby mitigating consumption volatility. While transfers directly support private consumption smoothing, public investment also con- tributes to this goal by sustaining future income through gradual capital accumulation. Higher aid volatility calls for increased public investment, underscoring the role of public capital accumulation as a precautionary saving instrument, beyond its developmental role discussed in the literature.
- Notes:
- Description based on print version record.
- ISBN:
- 979-82-290-2016-9
The Penn Libraries is committed to describing library materials using current, accurate, and responsible language. If you discover outdated or inaccurate language, please fill out this feedback form to report it and suggest alternative language.