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An Intertemporal Version of Mundell's Two-Country Flexible Exchange Rates Model with Disequilibrium Microfoundations: Is Policy Interdependence Inevitable?

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  • Rankin, Neil

Abstract

As a companion to a previous paper, monetary and fiscal policy are analyzed in (a) a small open economy and (b) a two-country world, where in addition to a fixed wage causing unemployment, countries now produce specialized products whose prices are fixed, causing excess supply. There are two periods, and perfect foresight. Markets clear in the second period. Exchange rates are flexible, and there is perfect capital mobility. Both monetary and fiscal policy raise domestic output whether the country is small or not, but do not affect foreign output or interest rates. Flexible exchange rates thus recover their "insulating" properties.

Suggested Citation

  • Rankin, Neil, 1987. "An Intertemporal Version of Mundell's Two-Country Flexible Exchange Rates Model with Disequilibrium Microfoundations: Is Policy Interdependence Inevitable?," CEPR Discussion Papers 185, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:185
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    Cited by:

    1. van der Ploeg, F., 1989. "Monetary disinflation, fiscal expansion and the current account in an interdependent world," Other publications TiSEM 484a8e4e-6115-46fb-9a60-b, Tilburg University, School of Economics and Management.
    2. van der Ploeg, Frederick, 1993. "Channels of international policy transmission," Journal of International Economics, Elsevier, vol. 34(3-4), pages 245-267, May.

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