The Effectiveness of Fiscal and Monetary Policies under Fixed and Flexible Exchange Rates: Empirical Evidence for Canada, 1950-1970

Martin Prachowny

Working Paper from Economics Department, Queen's University

Abstract: This paper estimates a model of a small open economy using Canadian data to determine the effects of monetary and fiscal policies on real income and the price level for fixed and flexible exchange rates. Reduced-form equations based on a 14-equation model are estimated. Under fixed exchange rates, monetary policy is ineffective and expansionary fiscal policy results in an increase in real income as well as the price level. Under flexible exchange rates, both fiscal and monetary policy affect the two policy goals and a combination of expansionary fiscal and monetary policies will increase real income while holding the price level constant.

Pages: 37
Date: 1975
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:185

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