Fiscal Discipline and the Choice of Exchange Rate Regime
AbstractConventional wisdom claims that fixed exchange rates provide more fiscal discipline than do flexible rates, but the recent experiences in Europe, the record of Sub-Saharan countries in the 1980s, and the history of stabilization attempts in Latin America cast empirical doubts on this wisdom. To explore this puzzle we present a standard intertemporal model with perfect capital mobility and price flexibility, in which fiscal policy is endogenously determined by a maximizing fiscal authority.
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Bibliographic InfoPaper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4004.
Date of creation: Sep 1994
Date of revision:
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