A simple model of three economies with two currencies: the eurozone and the USA |
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Authors: | Godley Wynne; Lavoie Marc |
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Institution: | * CERFUniversity of Cambridge, and Department of Economics at the University of Ottawa, respectively |
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Abstract: | This paper presents a Keynesian model which describes threecountries trading merchandise and financial assets with oneanother. It is initially assumed that all three countries haveindependent fiscal policies but that two of the countries sharea currency, hence the model can be used to make a preliminaryanalysis of the conduct of economic policy in the eurozonevis-à-vis the rest of the worldthe USA.The main conclusion will be that, if all three countries doindeed operate independent fiscal policies, the system willwork under a floating currency regime, but only so long as theEuropean central bank is prepared to modify the structure ofits assets by accumulating an ever rising proportion of billsissued by any weak euro country. |
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Keywords: | Three-country models Eurozone fiscal policy ECB monetary policy |
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