Theoretical Modeling of Macroeconomic Stability under Austerity: The Roles of FDI, Consumption Volatility, and Wage Financing

Boughabi, Houssam (2025): Theoretical Modeling of Macroeconomic Stability under Austerity: The Roles of FDI, Consumption Volatility, and Wage Financing. Published in: Journal of Business and Econometrics Studies , Vol. 2, No. 3 (22 May 2025): pp. 1-6.

Abstract

This study examines the persistence of investment in a closed economy under austerity conditions, focusing on the interaction between foreign direct investment (FDI), public expenditures, and payroll financing. We develop a dynamic model where investment volatility follows a FIGARCH process, capturing long-memory effects, while household consumption and investment interact through adaptive expectations. Policy implications suggest that strategic fiscal interventions can mitigate the adverse effects of economic contractions, supporting long-term investment flows and financial stability.

• Item Type: MPRA Paper
• Language: English
• Keywords: Investment Volatility, Austerity Policies, Economic Dynamics, Fiscal Policy Analysis
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt ; Debt Management ; Sovereign Debt; H - Public Economics > H6 - National Budget, Deficit, and Debt > H68 - Forecasts of Budgets, Deficits, and Debt

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