| Summary: | 碩士 === 國立臺灣大學 === 國際企業學研究所 === 90 === In this paper we discuss how the changes of government interventions in foreign exchange and capital markets influence the effectiveness of monetary and fiscal policies. By adding two variables to the Mundell-Fleming Model, the degree of capital mobility and the degree of intervening exchange rates by the central bank, we can analyze the changes of monetary and fiscal policies in different conditions.
Firstly, monetary policy effect is always larger when the central bank intervenes less on exchange rates. When capital is relatively immobile, intervening less on exchange rates will increase the effectiveness of the fiscal policy. On the contrary, that will decrease the effectiveness of the fiscal policy when capital is relatively mobile.
Secondly, when the degree of intervention on exchange rates is larger, increasing capital mobility will reduce the effectiveness of the monetary but increase that of the fiscal policy. However, when the degree of intervention on exchange rates is smaller, increasing capital mobility will increase the effectiveness of monetary but reduce that of the fiscal policy.
In conclusion, more flexible exchange rates helps the monetary policy effect. But the best conditions for the fiscal policy would be that regulating one and liberalizing the other. Therefore, We can find a saddle point on the changes of fiscal policy effect.
We also add the exchange rate expectations and flexible price into discussion. At the last part, we use Taiwan''s data to do some simulations.
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