Policy Response between Monetary Policy and Fiscal Policy A Case of Small-Open Economy Model
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Abstract
Strategic action between exchange rate and fiscal status has been
longtime debated between fiscal policymaker and monetary policymaker. Using a game theory approach of Stackelberg Model and Nash Equilibrium Model, government spending and interest rate in the Stackelberg model
will be higher than those under Nash Equilibrium Model. However, if im-
perfect capital mobility is allowed, interest rate and government spending will be higher than the case under perfect capital mobility.
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