From now on, we consider an asymmet

From now on, we consider an asymmetric domestic fiscal expansion where dgp > 0 and dg¤
p = 0.
For the parameter range given above, an unanticipated permanent positive shock to home
government expenditure will lead to a nominal appreciation of the exchange rate. The driving
force behind this result is an increase in the relative domestic demand for real balances.
Consider the following adjustment process: A higher level of government expenditure is
financed by an increase in taxes. Therefore, the disposable income of domestic households
decreases, which forces them to reduce consumption, leading to a higher marginal utility of
consumption. In the short run, output and consequently hours worked are completely demand
determined. In the long run, however, home residents are inclined to work more so as to achieve the optimal labor leisure trade off. The marginal utility of leisure rises while the additional
income spent on consumption lowers the marginal utility of consumption until equilibrium is
restored. In that case, the long run labor market will clear at a higher equilibrium work effort
facilitating a re-increase of consumption. Via the Euler equations that describe the households’
desire for consumption smoothing - abstracting from real interest rate effects - a higher long
run consumption level implies higher short run consumption. Then, due to the cash in advance
constraint18 domestic households are in the conjectured need of extra real balances in order to
finance the re-increase of consumption. As both money supply and domestic prices are fixed in
the short run, an increase of real balances can only be brought about through cheaper imports.
This requires an appreciation of the exchange rate.
We can now proceed to analyze how the degree of PTM and the home bias affect the
response of the nominal exchange rate in the light of a domestic fiscal expansion. In the case of
PTM, it is easy to see via the partial derivative, @et
@s , that a higher value of s leads to a larger
appreciation. A higher share of PTM goods implies that less goods are affected by a variation of the exchange rate. Consequently, the prices of the goods not subject to PTM have to change
more strongly to restore equilibrium, which means that the appreciation of the exchange rate
has to be more pronounced.
Likewise, a higher value of !, representing a stronger bias for domestically produced goods,
should reinforce the appreciation of the exchange rate. Again, the explanation is straightforward:
A smaller proportion of imported goods in the consumption basket of the household
implies that the prices of these goods have to change more strongly to obtain the required
change of the overall price level. Yet, the sign of the partial derivative of the exchange rate
with respect to ! is not unique. However, for reasonable parameter values our reasoning is
validated. Figure 1 illustrates the effect of a variation in ! on the exchange rate for different
values of s when domestic government expenditure dgp
¯c is increased by one percent. For the
numerical simulation we picked standard parameter values, namely µ = 6 and ¯ = 0:95.19 The
value of µ yields a relatively high mark up rate suitable for countries that are less competitive
than the United States, see Hairault and Portier (1993).
We are now prepared to solve the model for the consumption and output responses. Starting with the short run world consumption response, we add up linearized versions of the short run
money markets (29) and (30):

Hasil (Bahasa Indonesia) 1:

Sekarang kita mempertimbangkan perluasan fiskal domestik asimetris mana dgp > 0 dan dg¤p = 0.Untuk berbagai parameter yang diberikan di atas, kejutan positif permanen yang tak terduga ke rumahpengeluaran pemerintah akan mengarah kepada apresiasi nilai tukar nominal. Mengemudikekuatan di belakang hasil ini adalah peningkatan permintaan domestik relatif untuk saldo nyata.Mempertimbangkan proses penyesuaian berikut: tingkat pengeluaran pemerintah yang lebih tinggi adalahdibiayai oleh kenaikan pajak. Oleh karena itu, pendapatan dari rumah tangga domestikberkurang, yang memaksa mereka untuk mengurangi konsumsi, mengarah ke utilitas lebih tinggi darikonsumsi. Singkatnya menjalankan, output dan akibatnya jam bekerja yang benar-benar permintaanditentukan. Dalam jangka panjang, namun, rumah penduduk cenderung untuk bekerja lebih sehingga mencapai tenaga kerja optimal rekreasi perdagangan. Utilitas rekreasi naik sementara tambahanpendapatan yang dihabiskan untuk konsumsi menurunkan utilitas konsumsi sampai kesetimbangandipulihkan. Dalam hal ini, pasar tenaga kerja jangka panjang akan jelas pada keseimbangan lebih tinggi bekerja usahamemfasilitasi kembali meningkatkan konsumsi. Melalui persamaan Euler yang menggambarkan rumah tanggakeinginan untuk konsumsi smoothing - abstrak dari efek nyata suku bunga - panjang lebih tinggimenjalankan tingkat konsumsi menyiratkan konsumsi jangka pendek yang lebih tinggi. Kemudian, karena uang tunai di mukarumah tangga domestik constraint18 yang membutuhkan ekstra nyata saldo dalam rangka untuk conjecturedfinance the re-increase of consumption. As both money supply and domestic prices are fixed inthe short run, an increase of real balances can only be brought about through cheaper imports.This requires an appreciation of the exchange rate.We can now proceed to analyze how the degree of PTM and the home bias affect theresponse of the nominal exchange rate in the light of a domestic fiscal expansion. In the case ofPTM, it is easy to see via the partial derivative, @et@s , that a higher value of s leads to a largerappreciation. A higher share of PTM goods implies that less goods are affected by a variation of the exchange rate. Consequently, the prices of the goods not subject to PTM have to changemore strongly to restore equilibrium, which means that the appreciation of the exchange ratehas to be more pronounced.Likewise, a higher value of !, representing a stronger bias for domestically produced goods,should reinforce the appreciation of the exchange rate. Again, the explanation is straightforward:A smaller proportion of imported goods in the consumption basket of the householdimplies that the prices of these goods have to change more strongly to obtain the requiredchange of the overall price level. Yet, the sign of the partial derivative of the exchange ratewith respect to ! is not unique. However, for reasonable parameter values our reasoning isvalidated. Figure 1 illustrates the effect of a variation in ! on the exchange rate for differentvalues of s when domestic government expenditure dgp¯c is increased by one percent. For thenumerical simulation we picked standard parameter values, namely µ = 6 and ¯ = 0:95.19 Thevalue of µ yields a relatively high mark up rate suitable for countries that are less competitivethan the United States, see Hairault and Portier (1993).We are now prepared to solve the model for the consumption and output responses. Starting with the short run world consumption response, we add up linearized versions of the short runmoney markets (29) and (30):