Fiscal Shocks and the Exchange Rate in a Generalized Redux Model
type="main" xml:lang="en"> This paper studies how the interaction between the monetary policy regime and the degree of home bias in public consumption affects the exchange-rate response to fiscal shocks in a generalized version of the Redux model of Obstfeld and Rogoff ( ). We show that the joint presence of home bias in public consumption and endogenous monetary policy overturns the result of the Redux model implying an exchange-rate appreciation in response to an expansionary fiscal shock.
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Volume (Year): 44 (2015)
Issue (Month): 3 (November)
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