Javkhlan Ganbayar

Correspondence: Javkhlan Ganbayar, ganbayar.javkhlan@gmail.com

Graduate School of Humanities and Social Sciences, Saitama University, Saitama, Japan.

pdf (752.52 Kb) | doi: https://doi.org/10.47260/bae/1112

Abstract

This study contributes to the ongoing debate on the consequences of expansionary fiscal policy by evaluating the macroeconomic effects of various fiscal policy options in a small open economy using a dynamic stochastic general equilibrium (DSGE) model. In addition, the study emphasizes the importance of studying Mongolia, which has unique characteristics and exhibits significant research gaps regarding its fiscal policy. The general architecture of the selected DSGE model includes different types of firms and households, commodity sectors, natural resource funds, and abundant fiscal tools regarding both expenditure and revenue. Employing numerous types of fiscal policy shocks, this study reveals that an exogenous increase in government investment yields the most significant long-term economic benefits, boosting potential output by 0.3%. Among the policy options, government transfers are the least effective in promoting economic output, and existing transfer policies in Mongolia appear to exert only a modest impact on growth, instead primarily contributing to the redistribution of resources. Finally, the estimated output multipliers (except transfers) are greater than one, implying that fiscal policy instruments may be an effective tool for managing the economy in Mongolia.

Keywords:

  Fiscal policy, Fiscal policy multiplier, Small open economy, Dynamic Stochastic General Equilibrium model, Natural Resource Sector.

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