Channels of international policy transmission
A two-country, intertemporal, perfect-foresight model with micro foundations, floating exchange rates, uncovered interest parity, and nominal wage rigidities is formulated. The benchmark case corresponds to unit elasticities of intertemporal and intratemporal substitution in consumption, no initial holdings of foreign assets and infinite lifetimes. Monetary disinflation and an increase in government spending then have no spillover effects on foreign consumption and employment and there are no current account dynamics. Four channels of international policy transmission are then analysed. The first is based on capital gains on holdings of foreign assets. The spillover effects arising through the second and third channel depend on whether goods are gross substitutes or gross complements and on whether the elasticity of intertemporal substitution is less or greater than unity. The final channel assumes finite lifetimes and no bequest motive. It departs from debt neutrality in order to allow wealth effects and current account dynamics to play a more interesting role and to assess the difference between tax and debt finance.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barro, Robert J., 1974.
"Are Government Bonds Net Wealth?,"
3451399, Harvard University Department of Economics.
- Markink & A.J. & Van Der Ploeg.F, 1989. "Dynamic Policy Simulation Of Linear Models With Rational Expectations Of Future Events: A Computer Package," Papers 8906, Tilburg - Center for Economic Research.
- Svensson, Lars E O & van Wijnbergen, Sweder, 1989.
"Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances,"
Royal Economic Society, vol. 99(397), pages 785-805, September.
- Lars E.O. Svensson & Sweder van Wijnbergen, 1987. "Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances," NBER Working Papers 2262, National Bureau of Economic Research, Inc.
- Willem H. Buiter & Marcus Miller, 1991.
"Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation,"
in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 239-277
National Bureau of Economic Research, Inc.
- Buiter, Willem H. & Miller, Marcus, 1982. "Real exchange rate overshooting and the output cost of bringing down inflation," European Economic Review, Elsevier, vol. 18(1), pages 85-123.
- Buiter, Willem H. & Miller, Marcus, 1982. "Real exchange rate overshooting and the output cost of bringing down inflation," European Economic Review, Elsevier, vol. 18(2), pages 85-123.
- Willem H. Buiter & Marcus H. Miller, 1981. "Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation," NBER Working Papers 0749, National Bureau of Economic Research, Inc.
- Buiter, Willem H & Miller, Marcus, 1981. "Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation," The Warwick Economics Research Paper Series (TWERPS) 204, University of Warwick, Department of Economics.
- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
- Blanchard, Olivier J, 1985.
"Debt, Deficits, and Finite Horizons,"
Journal of Political Economy,
University of Chicago Press, vol. 93(2), pages 223-47, April.
- Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-71, December.
- Giovannini, Alberto, 1988. "The real exchange rate, the capital stock, and fiscal policy," European Economic Review, Elsevier, vol. 32(9), pages 1747-1767, November.
- Svensson, Lars E O, 1987. " International Fiscal Policy Transmission," Scandinavian Journal of Economics, Wiley Blackwell, vol. 89(3), pages 305-34.
- David Currie & Paul Levine, 1985. "Macroeconomic Policy Design in an Interdependent World," NBER Chapters, in: International Economic Policy Coordination, pages 228-273 National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:34:y:1993:i:3-4:p:245-267. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.