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Monetary and Fiscal Policy in Interdependent Economies with Capital Accumulation, Death and Population Growth


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  • van der Ploeg, Frederick


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 developed and analyzed. For the special case of a zero birth rate, individuals are indifferent between tax-finance and bond-finance or money-finance, so that both Ricardian debt-neutrality and monetary super-neutrality prevail. The general case is analyzed by decomposing the model into global averages and differences. A tax-financed increase in monetary growth leads to an interdependent Mundell-Tobin effect in which the world real interest rate falls and capital accumulation increases. A home monetary expansion leads to an increase in home consumption, a fall in foreign consumption and an increase in home holdings of foreign assets. If the expansion occurs through open-market operations, money is super-neutral. The international spillover effects of tax-financed and bond-financed increases in government spending and of bond-financed increases in lump-sum taxation are also considered.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 270.

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Date of creation: Sep 1988
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Handle: RePEc:cpr:ceprdp:270

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Keywords: Bonds; Monetary Growth; Monetary Neutrality; Open Economy Model; Taxation;

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Cited by:
  1. Ploeg, F. van der, 1989. "Monetary disinflation, fiscal expansion and the current account in an interdependent world," Discussion Paper 1989-18, Tilburg University, Center for Economic Research.
  2. Klundert, T.C.M.J. van de, 1989. "Reducing external debt in a world with imperfect asset and imperfect commodity substitution," Discussion Paper 1989-27, Tilburg University, Center for Economic Research.
  3. Klundert, T.C.M.J. van de, 1990. "Crowding out and the wealth of nations," Discussion Paper 1990-29, Tilburg University, Center for Economic Research.
  4. Klundert, T.C.M.J. van de, 1991. "Reducing external debt in a world with imperfect asset and imperfect commodity substitution," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5146601, Tilburg University.


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