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Say You Fix, Enjoy And Relax The Deleterious Effect Of Peg Announcements On Fiscal Discipline

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Author Info

  • Enrique Alberola

    (Banco de España)

  • Luis Molina

    (Banco de España)

  • Daniel Navia

    (Banco de España)

Abstract

This paper explores the impact of actual exchange rate regimes on fiscal discipline, which we purportedly link to the effect of announcing the peg and to the availability of external funds. To stress this point, the focus of the analysis is emerging markets spanning from the beginning of the nineties, given the importance of financial integration in the last fifteen years and the centrality of external financing for these countries. We empirically show that announcing the pegs has deleterious effects on fiscal discipline, while ‘de facto’ pegs which have not been announced deliver superior fiscal outcomes. The evidence suggests that this is due to the initial positive credibility shock of the announcement, which allows for easier and less costly access to the financing of fiscal deficits in emerging countries.

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File URL: http://128.118.178.162/eps/if/papers/0509/0509001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0509001.

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Length: 38 pages
Date of creation: 01 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0509001

Note: Type of Document - pdf; pages: 38
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Web page: http://128.118.178.162

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Keywords: exchange rate regimes; fiscal discipline;

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References

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Citations

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Cited by:
  1. Álvarez, Luis J. & Dhyne, Emmanuel & Hoeberichts, Marco M. & Kwapil, Claudia & Le Bihan, Hervé & Lünnemann, Patrick & Martins, Fernando & Sabbatini, Roberto & Stahl, Harald & Vermeulen, Philip & Vi, 2005. "Sticky prices in the euro area: a summary of new micro evidence," Working Paper Series 0563, European Central Bank.
  2. El-Shagi, Makram, 2009. "The impact of fixed exchange rates on fiscal discipline," Center for European, Governance and Economic Development Research Discussion Papers 84, University of Goettingen, Department of Economics.
  3. Maravall, Agustin, 2006. "An application of the TRAMO-SEATS automatic procedure; direct versus indirect adjustment," Computational Statistics & Data Analysis, Elsevier, vol. 50(9), pages 2167-2190, May.
  4. de Castro Fernández, Francisco & Hernández de Cos, Pablo, 2006. "The economic effects of exogenous fiscal shocks in Spain: a SVAR approach," Working Paper Series 0647, European Central Bank.
  5. Óscar J. Arce & David López-Salido, 2006. "House Prices, Rents, and Interest Rates under Collateral Constraints," Banco de Espa�a Working Papers 0610, Banco de Espa�a.
  6. El-Shagi, Makram, 2009. "The impact of fixed exchange rates on fiscal discipline," Center for European, Governance and Economic Development Research Discussion Papers 84, University of Goettingen, Department of Economics.
  7. Mariya Hake & Fernando López-Vicente & Luis Molina, 2014. "Do the drivers of loan dollarisation differ between cesee and Latin America? a meta-analysis," Banco de Espa�a Working Papers 1406, Banco de Espa�a.
  8. Luis J. �lvarez & Pablo Burriel & Ignacio Hernando, 2010. "Price-setting behaviour in Spain: evidence from micro PPI data," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 105-121.
  9. Gabriel Jiménez & Vicente Salas-Fumás & Jesús Saurina, 2006. "Credit market competition, collateral and firms' finance," Banco de Espa�a Working Papers 0612, Banco de Espa�a.
  10. Guillermo Vuletin, 2013. "Exchange Rate Regimes And Fiscal Discipline: The Role Of Capital Controls," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2096-2109, October.
  11. Paloma López-García & Sergio Puente, 2006. "Business demography in Spain: determinants of firm survival," Banco de Espa�a Working Papers 0608, Banco de Espa�a.
  12. Enrique Alberola & Luis Molina & Pedro del Río, 2012. "Boom-bust cycles, imbalances and discipline in Europe," Banco de Espa�a Working Papers 1220, Banco de Espa�a.

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