IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Welfare effects of fiscal policy under alternative exchange rate regimes: the role of the scale variable of money demand

  • Pitterle, Ingo A.
  • Steffen, Dirk

This paper investigates the implications of alternative scale variables of money demand for the comparison of a flexible exchange rate regime with a monetary union in a New Open Economy Macroeconomics setup. The welfare evaluation of exchange rate regimes esstentially depends on the exchange rate response under the flexible regime. When the scale variable is private consumption, a domestic fiscal expansion yields a depreciation of the domestic currency. The combined expenditure switching and terms-of-trade effects are beneficial to domestic households, who thus prefer a flexible exchange rate regime. However, when the scale variable is total absorption, the domestic currency appreciates and the welfare results are reversed.

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.

File URL:
File Function: original version
Download Restriction: no

File URL:
File Function: revised version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13047.

in new window

Date of creation: Apr 2004
Date of revision: Oct 2004
Handle: RePEc:pra:mprapa:13047
Contact details of provider: Postal:
Ludwigstraße 33, D-80539 Munich, Germany

Phone: +49-(0)89-2180-2459
Fax: +49-(0)89-2180-992459
Web page:

More information through EDIRC

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.:

as in new window
  1. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
  2. Preuße, Heinz Gert, 2001. "How do Latin Americans think about the economic reforms of the 1990s?," Tübinger Diskussionsbeiträge 221, University of Tübingen, School of Business and Economics.
  3. Lane, P.R. & Ganelli, G., 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," CEG Working Papers 20026, Trinity College Dublin, Department of Economics.
  4. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
  5. Ganelli, G., 2000. "Useful Government Spending, Direct Crowding Out and Fiscal Policy Interdependence," The Warwick Economics Research Paper Series (TWERPS) 547, University of Warwick, Department of Economics.
  6. Martine Carré & Fabrice Collard, 1999. "Monetary Union : A Welfare Based Approach," Working Papers 99-62, Centre de Recherche en Economie et Statistique.
  7. Licht, Georg & Stadler, Manfred, 2003. "Auswirkungen öffentlicher Forschungsförderung auf die private F&E-Tätigkeit: Eine mikroökonomische Evaluation," Tübinger Diskussionsbeiträge 256, University of Tübingen, School of Business and Economics.
  8. Stephanie Schmitt-Grohe & Martin Uribe, 1997. "Price level determinacy and monetary policy under a balanced-budget requirement," Finance and Economics Discussion Series 1997-17, Board of Governors of the Federal Reserve System (U.S.).
  9. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 529-538.
  10. Stadler, Manfred, 2004. "Bildung, Innovationsdynamik und Produktivitätswachstum," Tübinger Diskussionsbeiträge 280, University of Tübingen, School of Business and Economics.
  11. Niemann, Rainer & Kiesewetter, Dirk, 2002. "Zur steuerlichen Vorteilhaftigkeit von Kapitallebensversicherungen
    [The tax advantages of life insurance policies]
    ," MPRA Paper 27277, University Library of Munich, Germany.
  12. Baur, Dirk, 2002. "The persistence and asymmetry of time-varying correlations," Tübinger Diskussionsbeiträge 232, University of Tübingen, School of Business and Economics.
  13. Jung, Robert & Tremayne, Andrew R., 2001. "Testing serial dependence in time series models of counts against some INARMA alternatives," Tübinger Diskussionsbeiträge 204, University of Tübingen, School of Business and Economics.
  14. Ronald McKinnon & Gunther Schnabl, 2004. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 331-360, 08.
  15. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  16. Stadler, Manfred, 2002. "Leistungsorientierte Besoldung von Hochschullehrern auf der Grundlage objektiv messbarer Kriterien," Tübinger Diskussionsbeiträge 237, University of Tübingen, School of Business and Economics.
  17. Kiesewetter, Dirk, 2002. "Tax neutrality and business taxation in Russia: A proposal for a consumption-based reform of the Russian income and profit tax," Tübinger Diskussionsbeiträge 242, University of Tübingen, School of Business and Economics.
  18. Stadler, Manfred & Wapler, Rüdiger, 2001. "Endogenous skilled-biased technological change and matching unemployment," Tübinger Diskussionsbeiträge 220, University of Tübingen, School of Business and Economics.
  19. Neubecker, Leslie, 2002. "The strategic effect of debt in dynamic price competition with fluctuating demand," Tübinger Diskussionsbeiträge 250, University of Tübingen, School of Business and Economics.
  20. Robert Miguel W. K. Kollman, 1999. "Explaining International Comovements of Output and Asset Returns; The Role of Money and Nominal Rigidities," IMF Working Papers 99/84, International Monetary Fund.
  21. Tille, Cedric, 2001. "The role of consumption substitutability in the international transmission of monetary shocks," Journal of International Economics, Elsevier, vol. 53(2), pages 421-444, April.
  22. Hairault, Jean-Olivier & Portier, Franck, 1993. "Money, New-Keynesian macroeconomics and the business cycle," European Economic Review, Elsevier, vol. 37(8), pages 1533-1568, December.
  23. Baur, Dirk & Schulze, Niels, 2005. "Coexceedances in financial markets--a quantile regression analysis of contagion," Emerging Markets Review, Elsevier, vol. 6(1), pages 21-43, April.
  24. Charles T. Carlstrom & Timothy S. Fuerst, 2001. "Real Indeterminacy in Monetary Models with Nominal Interest Rate Distortions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(4), pages 767-789, October.
  25. Gampfer, Ralf, 2002. "Fallende Preise in sequentiellen Auktionen: Das Beispiel des Gebrauchtwagenhandels," Tübinger Diskussionsbeiträge 231, University of Tübingen, School of Business and Economics.
  26. Neubecker, Leslie, 2001. "Aktienkursorientierte Management-Entlohnung: Ein Wettbewerbshemmnis im Boom?," Tübinger Diskussionsbeiträge 225, University of Tübingen, School of Business and Economics.
  27. Neus, Werner, 2002. "Fusionsanreize, strategische Managerentlohnung und die Frage des geeigneten Unternehmensziels," Tübinger Diskussionsbeiträge 244, University of Tübingen, School of Business and Economics.
  28. Brassat, Marcel & Kiesewetter, Dirk, 2002. "Steuervorteile durch Versorgungszusagen in Arbeitsverträgen," Tübinger Diskussionsbeiträge 248, University of Tübingen, School of Business and Economics.
  29. Gunther Schnabl, 2004. "De jure versus de facto Exchange Rate Stabilization in Central and Eastern Europe," International Finance 0404013, EconWPA.
  30. Ronald McKinnon & Gunther Schnabl, 2003. "Synchronised Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate," The World Economy, Wiley Blackwell, vol. 26(8), pages 1067-1088, 08.
  31. Robert Kollmann, 2001. "The exchange rate in a dynamic-optimizing business cycle model with nominal rigidities: a quantitative investigation," ULB Institutional Repository 2013/7630, ULB -- Universite Libre de Bruxelles.
  32. Kukuk, Martin & Stadler, Manfred, 2002. "Rivalry and innovation races," Tübinger Diskussionsbeiträge 236, University of Tübingen, School of Business and Economics.
  33. Gunther Schnabl, 2004. "Weak Economy and Strong Currency - The Origins of the Strong Yen in the 1990s," International Finance 0404017, EconWPA.
  34. Sutherland, Alan, 1996. "Exchange Rate Dynamics and Financial Market Integration," CEPR Discussion Papers 1337, C.E.P.R. Discussion Papers.
  35. Güth, Werner & Stadler, Manfred, 2004. "Path Dependence Without Denying Deliberation : An Exercise Model Connecting Rationality and Evolution," Tübinger Diskussionsbeiträge 282, University of Tübingen, School of Business and Economics.
  36. repec:afc:ecosoc:y:2005:i:33:p:1233-1264 is not listed on IDEAS
  37. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
  38. Kiesewetter, Dirk & Niemann, Rainer, 2001. "Beiträge und Rentenzahlungen in einer entscheidungsneutralen Einkommensteuer
    [Contributions and pension payments in a decision-neutral income tax]
    ," MPRA Paper 27324, University Library of Munich, Germany.
  39. Wapler, Rüdiger, 2001. "Unions, growth and unemployment," Tübinger Diskussionsbeiträge 206, University of Tübingen, School of Business and Economics.
  40. Leonor Coutinho, 2003. "Fiscal Policy in the New Open Economy. Macroeconomics and Prospects for Fiscal Policy Coordination," Economics Working Papers 021, European Network of Economic Policy Research Institutes.
  41. Ronald McKinnon & Gunther Schnabl, 2003. "China: A Stabilizing or Deflationary Influence in East Asia? THe Problem of Conflict Virtue," Working Papers 232003, Hong Kong Institute for Monetary Research.
  42. Mankiw, N Gregory & Summers, Lawrence H, 1986. "Money Demand and the Effects of Fiscal Policies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 415-29, November.
  43. Bayer, Stefan, 2003. "Possibilities and limitations of economically valuating ecological damages," Tübinger Diskussionsbeiträge 254, University of Tübingen, School of Business and Economics.
  44. Knirsch, Deborah, 2002. "Neutrality-based effective tax rates," Tübinger Diskussionsbeiträge 249, University of Tübingen, School of Business and Economics.
  45. Aoki, Masanao, 1985. "Misadjustment to anticipated shocks: an example of exchange-rate response," Journal of International Money and Finance, Elsevier, vol. 4(3), pages 415-420, September.
  46. Heilig, Stephan & Schöbel, Rainer, 2001. "Controlling chaos in a model with heterogeneous beliefs," Tübinger Diskussionsbeiträge 205, University of Tübingen, School of Business and Economics.
  47. Cedric Tille, 1999. "The role of consumption substitutability in the international transmission of shocks," Staff Reports 67, Federal Reserve Bank of New York.
  48. Starbatty, Joachim, 2002. "Die Abschaffung der DM ist noch keine Bereitschaft zur politischen Union," Tübinger Diskussionsbeiträge 246, University of Tübingen, School of Business and Economics.
  49. Neubecker, Leslie & Stadler, Manfred, 2003. "In hunt for size: Merger formation in the oil industry," Tübinger Diskussionsbeiträge 258, University of Tübingen, School of Business and Economics.
  50. Daniel L. Thornton, 1988. "Should consumer expenditures be the scale variable in empirical money demand equations?," Working Papers 1988-003, Federal Reserve Bank of St. Louis.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:13047. 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: (Joachim Winter)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.