The Role of the Aggregate Supply function in Open Economy Macroeconomics
| Project/Area Number |
07630035
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| Research Category |
Grant-in-Aid for Scientific Research (C)
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| Allocation Type | Single-year Grants |
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| Section | 一般 |
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| Research Field |
経済政策(含経済事情)
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| Research Institution | WASEDA UNIVERSITY |
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Principal Investigator |
AKIBA Hiruya WASEDA UNIVERSITY,SCHOOL OF POLITICAL SCIENCE AND ECONOMICS,PROFESSOR, 政治経済学部, 教授 (60138576)
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| Project Period (FY) |
1995 – 1996
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| Project Status |
Completed (Fiscal Year 1996)
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| Budget Amount *help |
¥400,000 (Direct Cost: ¥400,000)
Fiscal Year 1996: ¥200,000 (Direct Cost: ¥200,000)
Fiscal Year 1995: ¥200,000 (Direct Cost: ¥200,000)
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| Keywords | Open Economy Macroeconomics / Aggregate Supply Function / Expected Exchange Rate / 総供給関数 / マンデルの命題 |
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| Research Abstract |
After thorough consideration of how to formulate the aggregate supply function, I constructed a small country open economy macroeconomics model by applying an efficiency wage model to an open economy and by endogenizing both the exchange rate and the price level. Fortunately I could derive the reduced forms from the model. According to the results I found that, contrary to the Mundell's result meaning that monetary policy is effective but fiscal policy is ineffective for stimulating the domestic economy under the assumption of perfect capital mobility, monetary policy becomes ineffective and fiscal policy even has a contractionary effect on the domestic economy. For the ineffectiveness of monetary policy I found that the exchange rate depreciates after expansionary monetary policy and the expected exchange rate also depreciates because of the expected inflation, and therefore the aggregate supply was shown not to respond at the unchanged interest rate as shown by Lai (1993). But because the price level is decreased due to appreciation of the exchange rate after fiscal policy, the real exchange rate was proved to depreciate. As the aggregate supply function was proved to depend negatively on the real exchange rate within the efficiency wage model, I could prove that the fiscal policy has even more pessimistic result than the Mundell's.
Furthermore, I suspected that my result would be changed if I change the equilibrium condition for the money market within an open economy macroeconomics. After formulating the money demand function in several different ways, I found that the degree of overshooting of the exchange rate is reduced once the demand for money becomes sensitive to the exchange rate.
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Report
(3 results)
Research Products
(6 results)
