The limited role of fiscal policy in an open economy

Authors

  • R.I. MCKINNON

DOI:

https://doi.org/10.13133/2037-3643/11495

Keywords:

Open economy, model of fiscal policy, labor market, exchange rates, fixed, flexible

Abstract

The paper imposes the workings of the labor market on open-economy models of fiscal policy under fixed and under flexible exchange rates. The author then reexamines the conventional conclusion that fiscal policy is fully effective under fixed rates, but is fully offset under floating rates. For this purpose “fiscal policy” is an increase in government expenditures or a reduction in taxation covered by the issue of non-monetary debt that either domestic nationals or foreigners are eligible to buy.

 

JEL: E62, E42

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Published

2014-01-03

How to Cite

MCKINNON, R. (2014). The limited role of fiscal policy in an open economy. PSL Quarterly Review, 29(117). https://doi.org/10.13133/2037-3643/11495

Issue

Section

Editorial