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Monetary and Fiscal Policy in an Optimising Model with Capital Accumulation and Finite Lives

  • Marini, Giancarlo
  • van der Ploeg, Frederick

This paper considers the effects of monetary and fiscal policies in an optimizing model with capital accumulation and a pos itive birth rate. An increase in monetary growth leads to a reduction in the real interest rate and a boost of capital and total consumpti on. However, the superneutrality result still prevails when open-mark et operations are used to increase monetary growth and preferences ar e separable. A tax-financed fiscal expansion reduces capital and crow ds out consumption by more than 100 percent. A bond-financed fiscal e xpansion increases capital by less and crowds out consumption by more than a money-financed fiscal expansion. Copyright 1988 by Royal Economic Society.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 98 (1988)
Issue (Month): 392 (September)
Pages: 772-86

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Handle: RePEc:ecj:econjl:v:98:y:1988:i:392:p:772-86
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