I agree with your point
that fiscal policy can work through V and that is the correct way to
think about it. In fact Alex and I present this in our forthcoming
I think, however, you put too much emphasis on
interest elasticity. Which is the relevant "M" in the equation of
exchange? Surely not currency. Yet I can earn an interest return on
most parts of M2, if I care to.
The key arguments for sometimes
using fiscal rather than monetary policy have, I think, to do with
targeting very particular parts of the real economy.
Plus maybe the Fed doesn't have a strong enough political constituency to be asked to handle the entire macroeconomic problem.
me those two factors are much more important than anything having to do
with interest elasticity. Plus I am still influenced by Cooley's old
AER paper (1981?) and I don't trust any of the interest-elasticity
estimates, no matter what they find.
Addendum: This paper prompted the email.