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Fiscal announcements and real exchange rate dynamics

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  • Jyh-Lin Wu
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    Abstract

    This paper examines the dynamic impact of anticipated government spending on real exchange rates in a general-equilibrium framework. I show that an increase in government spending causes persistent movements in real exchange rates, and that the time profile of real exchange rates differs with patterns of government spending. Hence, one of the explanations for the misalignment and excess volatility of real exchange rates during the flexible exchange rate system may be volatile changes in government spending. Copyright Kluwer Academic Publishers 1994

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    File URL: http://hdl.handle.net/10.1007/BF01000486
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    Bibliographic Info

    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 5 (1994)
    Issue (Month): 2 (March)
    Pages: 177-190

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    Handle: RePEc:kap:openec:v:5:y:1994:i:2:p:177-190

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    Web page: http://www.springerlink.com/link.asp?id=100323

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    Keywords: fiscal announcements; real exchange rates; comparative dynamics;

    References

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    1. Mussa, Michael, 1982. "A Model of Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 74-104, February.
    2. Harold L. Cole & Maurice Obstfeld, 1989. "Commodity Trade and International Risk Sharing: How Much Do Financial Markets Matter?," NBER Working Papers 3027, National Bureau of Economic Research, Inc.
    3. Stephen J. Turnovsky, 1985. "Domestic and Foreign Disturbances in an Optimizing Model of Exchange- Rate Determination," NBER Working Papers 1407, National Bureau of Economic Research, Inc.
    4. Devereux, Michael B. & Purvis, Douglas D., 1990. "Fiscal policy and the real exchange rate," European Economic Review, Elsevier, vol. 34(6), pages 1201-1211, September.
    5. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
    6. Hall, Robert E, 1971. "The Dynamic Effects of Fiscal Policy in an Economy With Foresight," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 229-44, April.
    7. Mankiw, N Gregory, 1987. "Government Purchases and Real Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 407-19, April.
    8. Richard C. Marston, 1983. "Stabilization Policies in Open Economies," NBER Working Papers 1117, National Bureau of Economic Research, Inc.
    9. Penati, Alessandro, 1987. "Government spending and the real exchange rate," Journal of International Economics, Elsevier, vol. 22(3-4), pages 237-256, May.
    10. Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, vol. 2(4), pages 319-337.
    11. Obstfeld, Maurice & Stockman, Alan C., 1985. "Exchange-rate dynamics," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 18, pages 917-977 Elsevier.
    12. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December.
    13. Wilson, Charles A, 1979. "Anticipated Shocks and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 639-47, June.
    14. Marston, Richard C., 1985. "Stabilization policies in open economies," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 17, pages 859-916 Elsevier.
    15. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-27, March.
    16. Dellas, Harris, 1986. "A real model of the world business cycle," Journal of International Money and Finance, Elsevier, vol. 5(3), pages 381-394, September.
    17. Hodrick, Robert J., 1980. "Dynamic effects of government policies in an open economy," Journal of Monetary Economics, Elsevier, vol. 6(2), pages 213-239, April.
    18. Kenneth L. Judd, 1983. "Short-Run Analysis of Fiscal Policy in a Simple Perfect Foresight Model," Discussion Papers 559, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    19. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
    20. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
    21. Bruce, Neil & Purvis, Douglas D., 1985. "The specification and influence of goods and factor markets in open-economy macroeconomic models," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 16, pages 807-857 Elsevier.
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