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 C.E.P.R. Discussion Papers

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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