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Real Exchange Rate Effects of Fiscal Policy

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  • Jeffrey Sachs
  • Charles Wyplosz

Abstract

This paper develops a framework for analyzing the effects of fiscal policy on the real exchange rate. The short-run impact of various types of fiscal measures are considered as well as the dynamics of adjustment to long-run steady states. The analysis and related simulations suggest that the effect of fiscal policy changes on the real exchange rate can vary widely and will depend closely on a number of structural features, including the degree of asset substitutability,the composition of government spending, and the initial size of the public debt and net external position.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1255.

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Date of creation: Jan 1984
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Handle: RePEc:nbr:nberwo:1255

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References

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  1. Turnovsky, Stephen J., 1976. "The dynamics of fiscal policy in an open economy," Journal of International Economics, Elsevier, Elsevier, vol. 6(2), pages 115-142, May.
  2. Christ, Carl F, 1979. "On Fiscal and Monetary Policies and the Government Budget Restraint," American Economic Review, American Economic Association, American Economic Association, vol. 69(4), pages 526-38, September.
  3. Branson, William H, 1976. "The Dual Roles of the Government Budget and the Balance of Payments in the Movement from Short-Run to Long-Run Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 90(3), pages 345-67, August.
  4. Hodrick, Robert J., 1980. "Dynamic effects of government policies in an open economy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 6(2), pages 213-239, April.
  5. Kouri, Pentti J K, 1976. " The Exchange Rate and the Balance of Payments in the Short Run and in the Long Run: A Monetary Approach," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 78(2), pages 280-304.
  6. William H. Branson & Willem H. Buiter, 1982. "Monetary and Fiscal Policy with Flexible Exchange Rates," NBER Working Papers 0901, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Reinhart, Carmen, 1988. "Commodity markets and the international transmission of fiscal shocks," MPRA Paper 13411, University Library of Munich, Germany.
  2. Tarlok Singh, 2007. "Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 21(1), pages 25-64, 02.
  3. Barry Eichengreen & Charles Wyplosz, 1986. "The Economic Consequences of the Franc Poincare," NBER Working Papers 2064, National Bureau of Economic Research, Inc.
  4. Bruno Ducoudre & Antoine Bouveret, 2007. "On the Contingency of Equilibrium Exchange Rates with Time - Consistent Economic Policies," Sciences Po publications 2007-08, Sciences Po.
  5. Eichengreen, Barry, 1989. "International Monetary Stability Between the Wars: Structural Flaws or Misguided Policies?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 348, C.E.P.R. Discussion Papers.
  6. Marialuz Moreno Badia & Alex Segura-Ubiergo, 2014. "Real Exchange Rate Appreciation in Emerging Markets: Can Fiscal Policy Help?," IMF Working Papers 14/1, International Monetary Fund.
  7. Jeffrey Sachs & Warwick J. McKibbin, 1985. "Macroeconomic Policies in the OECD and LDC External Adjustmemt," NBER Working Papers 1534, National Bureau of Economic Research, Inc.
  8. Barry J. Eichengreen, 1987. "Trade deficits in the long run," Proceedings, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, pages 239-285.
  9. repec:spo:wpecon:info:hdl:2441/6125 is not listed on IDEAS
  10. Bernd Hayo & Matthias Uhl, 2012. "Regional Effects of Federal Tax Shocks," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201217, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  11. Kirkpatrick, Grant, 1984. "A continuous time cyclical growth model for the Federal Republic of Germany: Construction, estimation and analysis," Kiel Working Papers 219, Kiel Institute for the World Economy.
  12. International Monetary Fund, 2011. "Oil-Price Boom and Real Exchange Rate Appreciation," IMF Working Papers 11/268, International Monetary Fund.
  13. Turnovsky, Stephen J., 1986. "Short-term and long-term interest rates in a monetary model of a small open economy," Journal of International Economics, Elsevier, Elsevier, vol. 20(3-4), pages 291-311, May.
  14. Richard Cantor & Robert Driskill, 1996. "Can a fiscal contraction strengthen a currency?: Some doubts about conventional Mundell-Fleming results," Research Paper, Federal Reserve Bank of New York 9629, Federal Reserve Bank of New York.
  15. Michael Hutchison & Charles Pigott, 1984. "Budget deficits, exchange rates and the current account: theory and U. S. evidence," Economic Review, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Fall, pages 5-25.
  16. Alexius, Annika, 2000. "Supply Shocks and Real Exchange Rates," Working Paper Series 117, Sveriges Riksbank (Central Bank of Sweden).

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