erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

Intertemporal Model of Competitiveness, Stock Market, and Intertemporal Dynamics: Policy Simulation

Şaziye Gazioğlu (University of Aberdeen, UK)

Abstract

This paper develops an open economy intertemporal optimising model that seeks to analyse the effect of bill financed government expenditure on several key financial markets. The main results suggest that an increase in bill financed government expenditure leads to rise in net intertemporal debt a fall in domestic competitiveness and a fall in stock market value. Furthermore, due to the presence of non-linearities in the model, reserving the deficit financing policy doesn’t restore the initial net international credit, high stock market state. Instead, the country finds itself stuck in international debt and low stock market value trap.

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