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Fiscal Shocks and Real Exchange Rate Dynamics: Some Evidence for Latin America

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  • Guglielmo Maria Caporale
  • Davide Ciferri
  • Alessandro Girardi

Abstract

This paper analyses the effects of fiscal shocks using a two-country macroeconomic model for output, labour input, government spending and relative prices which provides the orthogonality restrictions for obtaining the structural shocks. Dynamic simulation techniques are then applied, in particular to shed light on the possible effects of fiscal imbalances on the real exchange rate in the case of six Latin American countries. Using quarterly data over the period 1980-2006, we find that in a majority of cases fiscal shocks are the main driving force of real exchange rate fluctuations.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2228.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2228

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Keywords: fiscal shocks; real exchange rate; Latin American countries;

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Cited by:
  1. Santanu Chatterjee & Azer Mursagulov, 2012. "Fiscal Policy and the Real Exchange Rate," IMF Working Papers 12/52, International Monetary Fund.
  2. Guglielmo Maria Caporale & Alessandro Girardi, 2012. "Business Cycles, International Trade and Capital Flows: Evidence from Latin America," Discussion Papers of DIW Berlin 1254, DIW Berlin, German Institute for Economic Research.

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