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Welfare and Public Policy: The Role of Internationalized Production

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  • Hsiao-Lei Chu
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    Abstract

    I incorporate internationalized production, whereby firms hire domestic and foreign production factors, into the model of Corsetti and Pesenti (2001). In contrast to their conclusion, I find that an expansionary monetary shock can be beggar-thy-neighbor and a fiscal shock can improve national welfare. The transmission mechanism of public policy here is different from theirs. In particular, a fiscal shock can affect the short-run exchange rate and generate long-run welfare effects even if it is temporary. Results in this article offer another rationale for international retaliation and coordination. (JEL F30, F40) Copyright 2005, Oxford University Press.

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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 43 (2005)
    Issue (Month): 3 (July)
    Pages: 542-557

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    Handle: RePEc:oup:ecinqu:v:43:y:2005:i:3:p:542-557

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    Cited by:
    1. Chu, Hsiao-Lei, 2012. "Monetary policy of a small open economy in the world production chain," Economic Modelling, Elsevier, vol. 29(6), pages 2751-2755.

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