Monetary and Fiscal Policy in an Optimising Model with Capital Accumulation and Finite Lives

Giancarlo Marini and Frederick (Rick) van der Ploeg

Economic Journal, 1988, vol. 98, issue 392, 772-86

Abstract: This paper considers the effects of monetary and fiscal policies in an optimizing model with capital accumulation and a pos itive birth rate. An increase in monetary growth leads to a reduction in the real interest rate and a boost of capital and total consumpti on. However, the superneutrality result still prevails when open-mark et operations are used to increase monetary growth and preferences ar e separable. A tax-financed fiscal expansion reduces capital and crow ds out consumption by more than 100 percent. A bond-financed fiscal e xpansion increases capital by less and crowds out consumption by more than a money-financed fiscal expansion. Copyright 1988 by Royal Economic Society.

Date: 1988
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Related works:
Working Paper: Monetary and fiscal policy in an optimising model with capital accumulation and finite lives (1990)
Working Paper: Monetary and Fiscal Policy in an Optimizing Model with Capital Accumulation and Finite Lives (1987)
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