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Fiscal Policy and Exchange Rates

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  • Barbara Annicchiarico

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Abstract

This paper examines the dynamics of the nominal exchange rate and fiscal deficits in a continuous time optimizing general equilibrium model with finite horizon. It is shown that alternative financing modes of budget deficits imply different patterns of adjustment along the transitional path towards the steady state equilibrium. In particular, the respect of public solvency without money financing is not suffcient to avoid the depreciation of the exchange rate in the long-run after a fiscal expansion.

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File URL: http://hdl.handle.net/10.1007/s00712-006-0212-8
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Bibliographic Info

Article provided by Springer in its journal Journal of Economics.

Volume (Year): 89 (2006)
Issue (Month): 2 (November)
Pages: 165-185

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Handle: RePEc:kap:jeczfn:v:89:y:2006:i:2:p:165-185

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Web page: http://www.springerlink.com/link.asp?id=108909

Related research

Keywords: exchange rates; fiscal deficits; current account dynamics; F31; F32; E62;

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Citations

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Cited by:
  1. César Calderón M., 2004. "Un Análisis del Comportamiento del Tipo de Cambio Real en Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 7(1), pages 5-30, April.
  2. El-Shagi, Makram, 2009. "The impact of fixed exchange rates on fiscal discipline," Center for European, Governance and Economic Development Research Discussion Papers 84, University of Goettingen, Department of Economics.
  3. El-Shagi, Makram, 2009. "The impact of fixed exchange rates on fiscal discipline," Center for European, Governance and Economic Development Research Discussion Papers 84, University of Goettingen, Department of Economics.
  4. Calderon, Cesar & Kubota, Megumi, 2009. "Does higher openness cause more real exchange rate volatility ?," Policy Research Working Paper Series 4896, The World Bank.

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