Fiscal Policy and Welfare under Different Exchange Rate Regimes

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dc.contributor.author	Østrup, Finn	en_US
dc.date.accessioned	2009-02-04T10:26:12Z
dc.date.available	2009-02-04T10:26:12Z
dc.date.issued	2005-05-25T00:00:00Z	en_US
dc.identifier.isbn	8790705904	en_US
dc.identifier.uri	http://hdl.handle.net/10398/7140
dc.description.abstract	The article analyses how government spending is determined under different exchange rate regimes in the context of a small open economy. Assuming nominal wage contracts which last for one period and assuming a benevolent government which determines government spending to optimise a representative individual’s utility, it is demonstrated that there are differences between exchange rate regimes with respect to the level of government spending. These differences arise first because a rise in government spending affects macroeconomic variables differently under different exchange rate regimes, and second because the government’s inclination to expand government spending is affected by inflation which depends on the exchange rate regime. At low rates of inflation, the government is inclined to set a higher level of government spending under a fixed exchange rate regime than under a floating exchange rate regime in which the monetary authority optimises preferences which include an employment target and an inflation target. As government spending affects the representative individual’s utility, the choice of exchange rate regime has an impact on welfare. Keywords: exchange rate regimes; fiscal policy; monetary union; inflation targeting. JEL classicification: E42, E61, E62, F33.	en_US
dc.format.extent	26 s.	en_US
dc.language	eng	en_US
dc.relation.ispartofseries	Working paper;2005-001	en_US
dc.subject.other	exchange rate regimes	en_US
dc.subject.other	fiscal policy	en_US
dc.subject.other	inflation targeting	en_US
dc.title	Fiscal Policy and Welfare under Different Exchange Rate Regimes	en_US
dc.type	wp	en_US
dc.accessionstatus	modt25maj05 miel	en_US
dc.contributor.corporation	Copenhagen Business School. CBS	en_US
dc.contributor.department	Institut for Finansiering	en_US
dc.contributor.departmentshort	FI	en_US
dc.contributor.departmentuk	Department of Finance	en_US
dc.contributor.departmentukshort	FI	en_US
dc.idnumber	8790705904	en_US
dc.publisher.city	København	en_US
dc.publisher.year	2005	en_US