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Monetary and fiscal policy interactions in a post Keynesian open-economy model

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  • Carlos Eduardo Drumond
  • Cleiton Silva De Jesus

Abstract

Using a post Keynesian model, this study aims to analyze the stabilizing role of fiscal and monetary policies in an open economy with a managed exchange rate regime. The real exchange rate is modeled as an endogenous variable and inflation explained using the conflicting claims approach. The dynamic properties of macroeconomic equilibrium are evaluated in different regimes of fiscal and monetary policies. The main result of this study suggests that the preferred policy regime is the one in which economic authorities are complementary and fiscal policy plays an explicitly active role. In this regime, the fiscal policy must commit to the target for the rate of capacity utilization and the monetary authority must commit to the inflation target.

Suggested Citation

  • Carlos Eduardo Drumond & Cleiton Silva De Jesus, 2016. "Monetary and fiscal policy interactions in a post Keynesian open-economy model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 39(2), pages 172-186, April.
    • Handle: RePEc:mes:postke:v:39:y:2016:i:2:p:172-186
    DOI: 10.1080/01603477.2016.1147332
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    1. Marc Lavoie & Mario Seccareccia (ed.), 2004. "Central Banking in the Modern World," Books, Edward Elgar Publishing, number 3297.
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    Cited by:

    1. Emiliano Libman, 2019. "Destabilizing Balance Sheet Effects in the New Consensus Model," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(4), pages 590-611, October.
    2. Roger Alejandro Banegas Rivero & Marco Alberto Nunez Ramirez & Sacnicte Valdez Del Rio, 2021. "Interaction of Economic Policy. Lessons on Social Welfare and Risk Premium," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 17(1), pages 7-29.
    3. Carlos Eduardo Iwai Drumond & Cleiton Silva Jesus & João Basilio Pereima & Hiroyuki Yoshida, 2022. "Alternative monetary policy rules and expectational consistency," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 319-341, April.

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