Monetary and Fiscal Policy in Interdependent Economies with Capital Accumulation, Death and Population Growth

Frederick (Rick) van der Ploeg

No 270, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: A two-country, optimizing model with capital accumulation, purchasing power parity, floating exchange rates, uncovered interest parity, perfect foresight, finite lives and population growth is developed and analyzed. For the special case of a zero birth rate, individuals are indifferent between tax-finance and bond-finance or money-finance, so that both Ricardian debt-neutrality and monetary super-neutrality prevail. The general case is analyzed by decomposing the model into global averages and differences. A tax-financed increase in monetary growth leads to an interdependent Mundell-Tobin effect in which the world real interest rate falls and capital accumulation increases. A home monetary expansion leads to an increase in home consumption, a fall in foreign consumption and an increase in home holdings of foreign assets. If the expansion occurs through open-market operations, money is super-neutral. The international spillover effects of tax-financed and bond-financed increases in government spending and of bond-financed increases in lump-sum taxation are also considered.

Keywords: Bonds; Monetary Growth; Monetary Neutrality; Open Economy Model; Taxation (search for similar items in EconPapers)
Date: 1988-09
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Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Monetary and fiscal policy in interdependent economies with capital accumulation, death and population growth (1988)
Working Paper: Monetary and fiscal policy in interdependent economies with capital accumulation, death and population growth (1988)
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