Monetary Policy, Fiscal Policy and Sterilized Intervention in a Model of Exchange Rate and Aggregate-Demand Dynamics

Fidelina Natividad-Carlos

No 198917, UP School of Economics Discussion Papers from University of the Philippines School of Economics

Abstract: This paper incorporates a fully-sterilized intervention policy and imperfect capital substitutability into a model characterized by sluggish agragate demand, sticky prices, and rational expectations. It shows that intervention may eliminate overshooting resulting from monetary expansion but may only dampen overshooting resulting from fiscal expansion.

Date: 1989-12
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Published as UPSE Discussion Paper No. 1989-17, December 1989

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