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Money and Capital in Interdependent Economies with Overlapping Generations

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  • van der Ploeg, Frederick

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 analyzed. For the case of a zero birth rate, individuals are indifferent between tax finance and bond finance or money finance, so that Ricardian debt-neutrality and super-neutrality prevail. In general, a tax-financed increase in monetary growth leads to an interdependent Mundell-Tobin effect; that is, the world real interest rate falls and capital accumulation increases. A home monetary expansion leads in the long run to an increase in home consumption and net foreign assets. If the expansion occurs through open-market operations, money is super-neutral. Numerical methods are used to calculate the short-run and interim multipliers and to discuss the effects of imperfect substitution between home and foreign goods. Copyright 1991 by The London School of Economics and Political Science.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 58 (1991)
Issue (Month): 230 (May)
Pages: 233-56

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Handle: RePEc:bla:econom:v:58:y:1991:i:230:p:233-56

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Cited by:
  1. Alogoskoufis, George & van der Ploeg, Frederick, 1991. "Money and Growth Revisited," CEPR Discussion Papers 532, C.E.P.R. Discussion Papers.
  2. Barbara Annicchiarico, 2003. "Fiscal Policy and Exchange Rates," CEIS Research Paper 7, Tor Vergata University, CEIS.
  3. Donald A. R. George (University of Edinburgh), 2013. "Rational Expectations Dynamics: A Methodological Critique," ESE Discussion Papers 217, Edinburgh School of Economics, University of Edinburgh.
  4. Dai, Meixing, 1992. "Technological dependence and budgetary policy in an uncertain horizon model of small open economy," MPRA Paper 14003, University Library of Munich, Germany.
  5. Alogoskoufis, George & van der Ploeg, Frederick, 1991. "Debts, Deficits and Growth in Interdependent Economies," CEPR Discussion Papers 533, C.E.P.R. Discussion Papers.
  6. Groof, R.J. de & Tuijl, M.A. van, 1993. "The twin-debt problem in an interdependent world," Research Memorandum 588, Tilburg University, Faculty of Economics and Business Administration.

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