International Economics with IS-MP. A (monetary) Keynesian Approach

Betz, Karl

doi:10.48499/FHSWF.ME.IW.10

Published

International Economics with IS-MP. A (monetary) Keynesian Approach

In a monetary Keynesian perspective the exchange rate is an asset price. NCO therefore doesn't determine the exchange rate, but net exports determine NCO. Thus the effect of a real devaluation is depicted differently in the IS-MP diagram: A real devaluation shifts IS to the right add thus increases income and employment (while it diminishes the wage share). Only in the longer run may the change in the international investment position exert an influence on the exchange rate. The appendix provides a short overview over German mercantilistic policy in the Naughties.