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- Title
A simple model of three economies with two currencies: the eurozone and the USA.
- Authors
Godley, Wynne; Lavoie, Marc
- Abstract
This paper presents a Keynesian model which describes three countries trading merchandise and financial assets with one another. It is initially assumed that all three countries have independent fiscal policies but that two of the countries share a currency, hence the model can be used to make a preliminary analysis of the conduct of economic policy in `the eurozone' vis-à-vis the rest of the world—'the USA'. The main conclusion will be that, if all three countries do indeed operate independent fiscal policies, the system will work under a floating currency regime, but only so long as the European central bank is prepared to modify the structure of its assets by accumulating an ever rising proportion of bills issued by any `weak' euro country.
- Subjects
UNITED States; EUROPE; KEYNESIAN economics; INTERNATIONAL economic relations; UNITED States economic policy; ECONOMIC policy
- Publication
Cambridge Journal of Economics, 2007, Vol 31, Issue 1, p1
- ISSN
0309-166X
- Publication type
Article
- DOI
10.1093/cje/bel010