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Fiscal Policy And Exchange Rates

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Author Info
Barbara Annicchiarico
Abstract

This paper examines the dynamics of the nominal exchange rate and fiscal deficits in a continuous time optimising general equilibrium model with finite horizon. It is shown that alternative financing modes of budget deficits imply di erent patterns of adjustment along the transitional path towards the steady state equilibrium. Fiscal policy may provide the nominal anchor for the exchange rate and the respect of public solvency without money financing is not suffcient to avoid the depreciation of the exchange rate in the long-run after a fiscal expansion. Keywords: Exchange Rates, Fiscal Deficits, Current Account Dynamics. J.E.L. Classification: F31, F32, E62.

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Paper provided by Tor Vergata University, CEIS in its series Departmental Working Papers with number 174.

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Date of creation: Oct 2002
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Handle: RePEc:rtv:ceiswp:174

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  15. Canzoneri, Matthew B & Cumby, Robert E & Diba, Behzad T, 2001. "Fiscal Discipline and Exchange Rate Systems," Economic Journal, Royal Economic Society, vol. 111(474), pages 667-90, October. [Downloadable!] (restricted)
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  22. van der Ploeg, Frederick, 1991. "Money and Capital in Interdependent Economies with Overlapping Generations," Economica, London School of Economics and Political Science, vol. 58(230), pages 233-56, May. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Makram El-Shagi, 2009. "The Impact of Fixed Exchange Rates on Fiscal Discipline," cege – Center for European, Governance and Economic Development Research Discussion Papers 84, cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany)., revised 08 Jun 2009. [Downloadable!]
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