Working Paper: NBER ID: w0949
Authors: Thorvaldur Gylfason; John F. Helliwell
Abstract: This paper presents a simple synthesis of Keynesian, monetary, and portfolio approaches to macroeconomic theory under flexible exchange rates. By including the key features of all the partial approaches in a general model, we show that some of the important contrasts that have been drawn between the approaches are due to a neglect of repercussions elsewhere in the economy. After reconciling these false contrasts, we show how some of the approaches still give different predictions about the effects of monetary and fiscal policy using differing assumptions about the international mobility of goods and financial assets.
Keywords: Flexible Exchange Rates; Monetary Policy; Fiscal Policy; Keynesian Approach; Portfolio Approach
JEL Codes: F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in government spending (H59) | Exchange rate falls (F31) |
| Increase in government spending (H59) | Output rises (C67) |
| Increase in money supply (E51) | Output rises (C67) |
| Increase in money supply (E51) | Exchange rate rises temporarily (F31) |
| Increase in money supply (E51) | Medium-term depreciation of exchange rate (F31) |