Abstract
A two-country optimizing model with capital accumulation, purchasing power parity, floating exchange rates, uncovered interest parity, perfect foresight, finite lives and population growth is analyzed. For the case of a zero birth rate, individuals are indifferent between tax finance and bond finance or money finance, so that Ricardian debt-neutrality and super-neutrality prevail. In general, a tax-financed increase in monetary growth leads to an interdependent Mundell-Tobin effect; that is, the world real interest rate falls and capital accumulation increases. A home monetary expansion leads in the long run to an increase in home consumption and net foreign assets. If the expansion occurs through open-market operations, money is super-neutral. Numerical methods are used to calculate the short-run and interim multipliers and to discuss the effects of imperfect substitution between home and foreign goods. Copyright 1991 by The London School of Economics and Political Science.
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