01778cas a2200241 a 4500 AALejournalIMF016959 230101c9999 xx r poo 0 0eng d 5.00 USD 9781498366298 1018-5941 BD-DhAAL BD-DhAAL Sin, Jasmin. The Fiscal Multiplier in Small Open Economy : The Role of Liquidity Frictions / Jasmin Sin. Washington, D.C. : International Monetary Fund, 2016. 1 online resource (34 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper studies the fiscal multiplier using a small-open-economy DSGE model enriched with financial frictions. It shows that the multiplier is large when frictions are present in domestic and international financial markets. The reason is that in the model government bonds are more liquid than private financial assets and that entrepreneurs face liquidity constraints. A bond-financed fiscal expansion eases these constraints and stimulates investment and hence growth. This mechanism, however, breaks down under the assumption of perfect international capital mobility, suggesting that conventional models which ignore the presence of frictions in international capital markets tend to underestimate the fiscal multiplier. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2016/138 Full text available on IMF http://elibrary.imf.org/view/journals/001/2016/138/001.2016.issue-138-en.xml IMF e-Library