Interactions Between Monetary and Fiscal Policy Under Flexible Exchange Rates

Campbell Leith and Simon Wren-Lewis

No 134, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: We extend the fiscal theory of the price level (FTPL) by developing a two-country open-economy model under flexible exchange rates, where overlapping generations of consumers supply labour to imperfectly competitive firms which change their prices infrequently. We show that the fiscal response required to support an active inflation-targeting monetary policy is greater when consumers have finite lives. Additionally, one monetary authority can abandon its active targeting of inflation to stabilise the debt of a fiscal authority, even if the policy makers operate in different countries. Finally, through simulations, we consider the impact of fiscal shocks on key macroeconomic variables.

Keywords: monetary policy; fiscal policy; new open economy macroeconomics; fiscal theory of the price level (search for similar items in EconPapers)
JEL-codes: E10 E63 (search for similar items in EconPapers)
Date: 2003-06-04
New Economics Papers: this item is included in nep-ifn and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
http://repec.org/res2003/Leith.pdf full text

Related works:
Journal Article: Interactions between monetary and fiscal policy under flexible exchange rates (2008)
Working Paper: Interactions Between Monetary and Fiscal Policy under Flexible Exchange Rates
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecj:ac2003:134

Access Statistics for this paper

More papers in Royal Economic Society Annual Conference 2003 from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().