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Title:Welfare Effects of Fiscal Policy under Alternative Exchange Rate Regimes : The Role of the Scale Variable of Money Demand PDF Logo
Authors:Pitterle, Ingo
Steffen, Dirk
Issue Date:2004
Series/Report no.:Tübinger Diskussionsbeiträge 284
Abstract: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 NOEM setup. The welfare evaluation of exchange rate regimes depends on the exchange rate response under the flexible regime. When the scale variable is private consumption, a domestic fiscal expansion yields a depreciation. As the associated expenditure switching and terms-of-trade effects are beneficial to the domestic country, households prefer flexible exchange rates. However, when the scale variable is total absorption, we obtain an appreciation and the welfare results are reversed.
Subjects:Fiscal Policy
New Open Economy Macroeconomics
Money Demand Specification
Flexible Exchange Rates
Monetary Union
Pricing-to-Market
JEL:F31
F42
F32
F41
Persistent Identifier of the first edition:urn:nbn:de:bsz:21-opus-18244
Document Type:Working Paper
Appears in Collections:Tübinger Diskussionsbeiträge, Universität Tübingen

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