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

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.