Fiscal Policy and Welfare under Different Exchange Rate Regimes


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Fiscal Policy and Welfare under Different Exchange Rate Regimes

Show simple item record Østrup, Finn en_US 2009-02-04T10:26:12Z 2009-02-04T10:26:12Z 2005-05-25T00:00:00Z en_US
dc.identifier.isbn 8790705904 en_US
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 København en_US
dc.publisher.year 2005 en_US

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