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Monetary and Fiscal Policy Under Perfect Foresight: A Symmetric Two Country Analysis

Stephen J. Turnovsky

NBER Working Paper No. 1699 (Also Reprint No. r0761)
Issued in September 1985
NBER Program(s):The International Trade and Investment Program, The International Finance and Macroeconomics Program

This paper analyzes the effects of anticipated and unanticipated domestic monetary and fiscal expansions on both the domestic and foreign economies. The analysis is based on symmetric behavior, which is not only not an unreasonable first approximation, but also offers significant analytical advantages. Specifically, it enables the dynamics of the system to be decoupled into (a) averages and (b) differences of relevant variables. Not only does this render the analysis tractable, but it also helps provide economic insight. One striking aspect is that the differences, but not the averages, respond to announcements. The consequences of this for the dynamic adjustments of the two economies to the various disturbances are discussed at length.

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Document Object Identifier (DOI): 10.3386/w1699

Published: Turnovsky, Stephen J. "Monetary and Fiscal Policy Under Perfect Foresight: A Symmetric Two Country Analysis," Economica, Vol. 53, No. 210, May 1986,pp. 139-157. citation courtesy of

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