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The Dynamics of Real Exchange Rate and Financial Assets of Contractionary Fiscal Policies cum Private Dissavings

In: The Role of Private Financial Wealth in a Portfolio Model

Author

Listed:
  • Angel Calderón-Madrid

    (El Colegio de Mexico)

Abstract

In analyses of the last few years of developments concerning the balance of payments in countries such as the UK, Australia and Mexico, a commonly found claim is that current account deficits, when associated with private sector dissavings, should not be a reason for concern. One of the arguments behind this claim is that unlike public sector dissavings – that is, fiscal deficits – those corresponding to the private sector should be self-correcting in the long run. The reasoning is that agents of the private sector are not going to ignore their ex-ante intertemporal budget constraint. This implies that they will eventually want to bring spending into line with their underlying asset and debt positions.

Suggested Citation

  • Angel Calderón-Madrid, 1995. "The Dynamics of Real Exchange Rate and Financial Assets of Contractionary Fiscal Policies cum Private Dissavings," Palgrave Macmillan Books, in: The Role of Private Financial Wealth in a Portfolio Model, chapter 2, pages 31-65, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-37554-3_2
    DOI: 10.1057/9780230375543_2
    as

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