 Fiscal Policy under Flexible Exchange Rates: When is Expansion Contractionary?Pekka Ahtiala International Economic Journal, 1998, vol. 12, issue 2, 17-34 Abstract: In this paper the behaviour functions are specified to correspond to their foundations in closed-economy macrotheory . The demand for real money balances, in terms of the expenditure basket of goods, is specified as a function of income in terms of the same basket. Imports are specified as a function of expenditures, being functionally part of expenditures. The supply of labor is specified as a function of the expenditure price. Fiscal expansion, while expansionary in the real wage model, turns out to be expansionary, neutral, or contractionary in the money wage model depending on whether the income elasticity of the demand for money is smaller than, equal to, or greater than one, also in the long run. However, if interest payments on foreign securities are not smaller relative to the trade balance, many of the effects are reversed. Output and the exchange rate overshoot their steady-state levels in both cases. [E1, F41] Date: 1998 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:intecj:v:12:y:1998:i:2:p:17-34 Ordering information: This journal article can be ordered from DOI: 10.1080/10168739800000011 Access Statistics for this article International Economic Journal is currently edited by Jaymin Lee Editor More articles in International Economic Journal from Taylor & Francis Journals |
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