dc.contributor.author | CORSETTI, Giancarlo | |
dc.contributor.author | KUESTER, Keith | |
dc.contributor.author | MÜLLER, Gernot J. | |
dc.date.accessioned | 2015-07-13T14:56:47Z | |
dc.date.available | 2015-07-13T14:56:47Z | |
dc.date.issued | 2011 | |
dc.identifier.citation | London : Centre for Economic Policy Research (CEPR), 2011 | |
dc.identifier.uri | https://hdl.handle.net/1814/36470 | |
dc.description.abstract | According to conventional wisdom, fiscal policy is more effective under a fixed than under a flexible exchange rate regime. In this paper we reconsider the transmission of shocks to government spending across these regimes within a standard new-Keynesian model of a small open economy. Because of the stronger emphasis on intertemporal optimization, the new-Keynesian framework requires a precise specification of fiscal and monetary policies, and their interaction, at both short and long horizons. We derive an analytical characterization of the transmission mechanism of expansionary spending policies under a peg, showing that the long-term real interest rate necessarily rises if inflation rises on impact, in response to an increase in government spending. This drives down private demand even though short-term real rates fall. As this need not be the case under floating exchange rates, the conventional wisdom needs to be qualified. Under plausible medium-term fiscal policies, government spending is not necessarily less expansionary under floating exchange rates. | |
dc.language.iso | en | |
dc.relation.ispartofseries | CEPR Discussion Paper | en |
dc.relation.ispartofseries | 2011/8180 | en |
dc.relation.uri | http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8180 | |
dc.rights | info:eu-repo/semantics/openAccess | |
dc.title | Floats, pegs and the transmission of fiscal policy | |
dc.type | Working Paper | |
eui.subscribe.skip | true | |