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The Effects Of Fiscal Shocks On The Exchange Rate In Spain

Author

Listed:
  • Francisco de Castro

    (Banco de España)

  • Laura Fernández

    (Banco de Sabadell)

Abstract

We analyse the impact of fiscal shocks on the Spanish effective exchange rate over the period 1981-2008 using a standard structural VAR framework. Government spending brings about positive responses of output and private consumption, jointly with real appreciation and a fall in trade balances. Real appreciation is explained by persistent nominal appreciation and higher relative prices. Accordingly, our results are largely consistent with the predictions of not only the conventional Mundell-Fleming model, but also of a number of New Keynesian models under standard calibrations. Moreover, our estimations are also consistent with the “twin deficits” hypothesis.

Suggested Citation

  • Francisco de Castro & Laura Fernández, 2013. "The Effects Of Fiscal Shocks On The Exchange Rate In Spain," The Economic and Social Review, Economic and Social Studies, vol. 44(2), pages 151-180.
  • Handle: RePEc:eso:journl:v:44:y:2013:i:2:p:151-180
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    References listed on IDEAS

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    Cited by:

    1. Francisco Castro & Daniel Garrote, 2015. "The effects of fiscal shocks on the exchange rate in the EMU and differences with the USA," Empirical Economics, Springer, vol. 49(4), pages 1341-1365, December.
    2. Eunji Kim & Yoonhee Ha & Sangheon Kim, 2017. "Public Debt, Corruption and Sustainable Economic Growth," Sustainability, MDPI, Open Access Journal, vol. 9(3), pages 1-30, March.
    3. Vesna Stojcevska & Mite Miteski, 2016. "Assessment of the Impact of Fiscal Policy on the Current Account – the Twin Deficit Hypothesis in the Case of Macedonian Economy," Working Papers 2016-01, National Bank of the Republic of Macedonia.
    4. Francisco de Castro & Francisco Martí & Antonio Montesinos & Javier J. Pérez & A. Jesús Sánchez-Fuentes, 2014. "Fiscal policies in Spain: Main stylises facts revisited," Working Papers 1408, Banco de España;Working Papers Homepage.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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