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The paper offers a survey of recent research on fiscal policy in both deterministic and stochastic models of the New Open Economy Macroeconomics (NOEM) initiated by Obstfeld and Rogoff (1995, 2002b). The survey includes a comparison of the implications of the deterministic benchmark model to the empirical evidence obtained in recent studies. It provides a detailed discussion of the recent extensions induced by the gap between theoretical and empirical implications. These extensions revise the traditionally studied aspects of fiscal issues such as the transmission channels of fiscal policy by introducing production specialization at the international level or by diversifying the pricing decisions of firms.
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