Welfare and Public Policy: The Role of Internationalized Production

Hsiao-Lei Chu

Economic Inquiry, 2005, vol. 43, issue 3, 542-557

Abstract: I incorporate internationalized production, whereby firms hire domestic and foreign production factors, into the model of Corsetti and Pesenti (2001). In contrast to their conclusion, I find that an expansionary monetary shock can be beggar-thy-neighbor and a fiscal shock can improve national welfare. The transmission mechanism of public policy here is different from theirs. In particular, a fiscal shock can affect the short-run exchange rate and generate long-run welfare effects even if it is temporary. Results in this article offer another rationale for international retaliation and coordination. (JEL F30, F40) Copyright 2005, Oxford University Press.

JEL-codes: F30 F40 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (7)

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