Pitterle, Ingo A. and Steffen, Dirk (2004): Welfare effects of fiscal policy under alternative exchange rate regimes: the role of the scale variable of money demand.
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This paper investigates the implications of alternative scale variables of money demand for the comparison of a flexible exchange rate regime with a monetary union in a New Open Economy Macroeconomics setup. The welfare evaluation of exchange rate regimes esstentially depends on the exchange rate response under the flexible regime. When the scale variable is private consumption, a domestic fiscal expansion yields a depreciation of the domestic currency. The combined expenditure switching and terms-of-trade effects are beneficial to domestic households, who thus prefer a flexible exchange rate regime. However, when the scale variable is total absorption, the domestic currency appreciates and the welfare results are reversed.
|Item Type:||MPRA Paper|
|Original Title:||Welfare effects of fiscal policy under alternative exchange rate regimes: the role of the scale variable of money demand|
|Keywords:||Fiscal Policy; New Open Economy Macroeconomics; Money Demand Specification; Flexible Exchange Rates; Monetary Union; Pricing-to-Market;|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
|Depositing User:||Ingo A. Pitterle|
|Date Deposited:||28. Jan 2009 03:25|
|Last Modified:||27. Feb 2013 17:59|
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