Interactions between Monetary and Fiscal Policy under Flexible Exchange Rates.

Journal article

We examine fiscal and monetary policy interactions by developing a two-country open-economy model under flexible exchange rates, where overlapping generations of consumers supply labour to imperfectly competitive firms that change their prices infrequently. We show in this context that the implications of lax fiscal policy in country A are significant for country B. Determinacy can be ensured by adopting a 'passive' monetary policy in either country A or country B. In both cases, however, lac...

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Authors: Leith, C; Wren-Lewis, S

• Journal: Journal of Economic Dynamics and Control
• Volume: 32
• Publication date: 2008-01-01
• ISSN: 0165-1889
• Language: English