Fiscal Policy in Classical and Keynesian Open Economies

• Author(s): Klaus Schmidt-Hebbel, Luis Serven,
• Publisher: World Bank Publications
• Pages: 47
• Language: en

Description:... In this model of classical and Keynesian open economies, both permanent and transitory disturbances cause changes in long- run output and capacity - and transitory and permanent shocks may have opposite effects on the current account. In the Keynesian economy, money- financed fiscal expansion causes real exchange rate depreciation; and non-money- financed fiscal expansion, appreciation.