Abstract
In a paper recently published in this journal, Lai and Chen (1984) compare the relative effectiveness of fiscal and monetary policies under fixed and flexible exchange rates, incorporating effects of a devaluation. They focus on the relative magnitude of expenditure switching and tight money effects in the Mundell-Flemming model. They conclude that this relative magnitude is the critical condition determining the relative effectiveness of fiscal and monetary policy when there is zero capital mobility. In addition, this relative magnitude is part of the critical condition when capital mobility is allowed. This note points out an ambiguity in the notion of relative effectiveness of a policy instrument across exchange rate regimes and amends Lai and Chen's results when an alternative definition is chosen. We
Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
