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Channels of international policy transmission

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  • van der Ploeg, F.

    (Tilburg University, Center For Economic Research)

Abstract

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.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • van der Ploeg, F., 1990. "Channels of international policy transmission," Discussion Paper 1990-59, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:3aa9587b-edb7-4a13-9067-3bcb29061857
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    References listed on IDEAS

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    1. Svensson, Lars E O & van Wijnbergen, Sweder, 1989. "Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances," Economic Journal, Royal Economic Society, vol. 99(397), pages 785-805, September.
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    4. Van Der Ploeg, F., 1986. "Monetary disinflation in a simple two-country model," Economics Letters, Elsevier, vol. 22(1), pages 73-76.
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    Cited by:

    1. Nicola Acocella & Giovanni Di Bartolomeo, 2003. "Wage and Public Expenditure Setting in a Monetary Union," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 6(1-2), pages 1-16, May - Nov.
    2. 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.
    3. Müller, Gernot J., 2008. "Understanding the dynamic effects of government spending on foreign trade," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 345-371, April.
    4. Ken-ichi Hashimoto, 2015. "Tariffs, Offshoring and Unemployment in A Two-Country Model," The Japanese Economic Review, Japanese Economic Association, vol. 66(3), pages 371-392, September.
    5. Rankin, Neil & Scalera, Domenico, 1995. "Death and the Keynesian multiplier," Ricerche Economiche, Elsevier, vol. 49(1), pages 75-87, March.
    6. Ono, Y., 2001. "International Spillover of Economic Fluctuations:A Dynamic Optimization Approach," ISER Discussion Paper 0527, Institute of Social and Economic Research, Osaka University.
    7. repec:ebl:ecbull:v:5:y:2004:i:1:p:1-13 is not listed on IDEAS
    8. Ballabriga, Fernando & Sebastian, Miguel & Valles, Javier, 1999. "European asymmetries," Journal of International Economics, Elsevier, vol. 48(2), pages 233-253, August.
    9. Yoshiyasu Ono, 2006. "Protective Trade Policies 'Reduce' Employment: A Dynamic Optimization Approach," ISER Discussion Paper 0659, Institute of Social and Economic Research, Osaka University.
    10. Leachman, Lori L. & Francis, Bill, 1995. "Long-run relations among the G-5 and G-7 equity markets: Evidence on the Plaza and Louvre Accords," Journal of Macroeconomics, Elsevier, vol. 17(4), pages 551-577.

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    Keywords

    Economic Policy; World Economy;

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