Welfare and public policy: the role of internationalized production

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Author: Hsiao-Lei Chu
Date: July 2005
From: Economic Inquiry(Vol. 43, Issue 3)
Publisher: Blackwell Publishers Ltd.
Document Type: Article
Length: 7,256 words

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Abstract :

I incorporate internationalized production, whereby firms hire domestic and foreign production factors, into the model of Corsetti and Pesenti (2001). In contrast to their conclusion, I find that an expansionary monetary shock can be beggar-thy-neighbor and a fiscal shock can improve national welfare. The transmission mechanism of public policy here is different from theirs. In particular, a fiscal shock can affect the short-run exchange rate and generate long-run welfare effects even if it is temporary. Results in this article offer another rationale for international retaliation and coordination. (JEL F30, F40)

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Gale Document Number: GALE|A134256774