IDEAS home Printed from https://ideas.repec.org/p/tam/wpaper/0865.html
   My bibliography  Save this paper

When Is Money Neutral Under Flexible Exchange Rates?

Author

Listed:
  • Pekka Ahtiala

    (School of Management, University of Tampere)

Abstract

The paper studies the conditions for the neutrality of money under flexible exchange rates in an extended real-wage Mundell-Fleming model, with special emphasis on the specification of the behavior functions to correspond to their foundations in closedeconomy macrotheory. It is shown that monetary expansion causes output first to decline, to eventually rise above its original level. However, if interest earnings on foreign securities dominate the trade balance in the expression for the exchange rate, monetary expansion leads to an appreciation of the exchange rate, while having an expansionary output effect. Money is neutral in the long run if either the wealth effect or foreign interest payments is abstracted from; if both are abstracted from, it is neutral also in the short run. Short and long-run neutrality results also if wealth consists only of foreign securities. The above responses hold both for net creditors and ­ with a minor qualification ­ debtors.

Suggested Citation

  • Pekka Ahtiala, 2008. "When Is Money Neutral Under Flexible Exchange Rates?," Working Papers 0865, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:0865
    as

    Download full text from publisher

    File URL: http://urn.fi/urn:isbn:978-951-44-7264-0
    File Function: First version, 2008
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Mundell-Fleming model; neutrality of money; flexible exchange rates;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tam:wpaper:0865. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sami Remes (email available below). General contact details of provider: https://edirc.repec.org/data/khutafi.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.