Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
The Transition D2 A2 A 1 A 3 D2 In the transition: P so that DD-curve D1 shifts to the left S e so that AA-curve shifts to the left 2 A2 S 3 1 A3 D1 A1 Y Y F 11 A Permanent Fiscal Expansion S A D1 1 (3 - transitory D2 AA shifts down e S because A2 1 3 A1 2 D2 Y A2 D1 fiscal expansion) F Y Result: Monetary policy is effective in the short run while fiscal policy is not effective. 12 Change in Pt e P (assume that t 1 is given) D 2 D1 S S A2 S A1 2 D2 A D1 1 1 A2 SP * S Y Y L(i, Y ) MS P 13 Y Phillips Curve ) Pte1 given) Pe P YF Y P Y P Y Pe P P Long run Short Run YF Y Y 0 14 Japan 1999 slump zero rate of interest (liquidity tramp) Expanded Fiscal Policy ( Deficit = 7-8% of GDP ) DD S DD’ AA Y Yen appreciated 12 percent in the May - September period vis a vis $ Output growth for 2000: 0.5% forecast 15 Capital Controls CA=0 D SP * Y D , Y T , I , G P S D Y C C Y T I G Y C C T I G Results: (1) monetary policy is ineffective (2) fiscal policy is effective 16 Closed Capital Account SP * Y D , Y T , I , G P SP * SP * M C C (Y T ) I G X , Y P P SP * SP * C C (Y T ) I G x S mY Y mS P P C marginal propensity to consume mY marginal propensity to import 17 Open Capital Account 1 C mY Y C SP * SP * C T I G xS mS P P SP * Y 1 C C T I G x S mS P 1 1 1 C mY open economy multiplier 18 Closed Capital Account (1) SP * SP * const x S mY Y mS 0 P P (2) Y C C Y T I G Y 2 C C T I G 1 1 1 C mY 1 2 1C open economy multiplier closed economy multiplier 19 Exchange-rate/Capital-flows Possibilities Triangle Capital Controls flexible exchange rate fixed exchange rate economic freedom stabilized exchange rate fluctuations stabilized output fluctuations 3 Policy Targets: (1) stabilized exchange rate fluctuations (2) stabilized output fluctuations (3) economic freedom 20