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On Fiscal Policies, External Imbalances and Fundamental Equilibrium Exchange Rates

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  • Alogoskoufis, George

Abstract

This paper presents an investigation of the relationship between fiscal policies, fundamental equilibrium real exchange rates and misalignments under fixed nominal exchange rate regimes like those proposed by McKinnon and supply-side fiscal policy. The medium-run effects operate mainly through the accumulation or decumulation of external assets. The analysis suggests that even temporary shifts in fiscal policy have permanent effects on fundamental equilibrium exchange rates and the natural rate of unemployment. In addition, because of differential inflation across countries, real exchange rates become misaligned in the short-run.

Suggested Citation

  • Alogoskoufis, George, 1989. "On Fiscal Policies, External Imbalances and Fundamental Equilibrium Exchange Rates," CEPR Discussion Papers 322, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:322
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    Cited by:

    1. repec:zbw:bofrdp:1995_002 is not listed on IDEAS
    2. Hoej, Liselotte, 1995. "Fundamental equilibrium exchange rate : a case study of the Finnish Markka," Research Discussion Papers 2/1995, Bank of Finland.
    3. Hoej, Liselotte, 1995. "Fundamental equilibrium exchange rate: a case study of the Finnish Markka," Bank of Finland Research Discussion Papers 2/1995, Bank of Finland.

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