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

39 Pages Posted: 19 Jun 2004 Last revised: 25 Aug 2022

See all articles by Stephen J. Turnovsky

Stephen J. Turnovsky

University of Washington - Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 1985

Abstract

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.

Suggested Citation

Turnovsky, Stephen J., Monetary and Fiscal Policy Under Perfect Foresight: a Symmetric Two Country Analysis (September 1985). NBER Working Paper No. w1699, Available at SSRN: https://ssrn.com/abstract=338777

Stephen J. Turnovsky (Contact Author)

University of Washington - Institute for Economic Research ( email )

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