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Fiscal Policy and the Predictability of Exchange Rate Collapse

Author

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  • Ms. Betty C. Daniel

Abstract

It is well known that the long-run viability of a fixed exchange rate regime imposes constraints on monetary policy. This paper shows that, in a model with forward-looking agents, short-run viability imposes a fiscal constraint. When policy change, which destroys long-run viability, also violates the fiscal constraint, collapse is instantaneous. Delayed predictable collapse requires satisfaction of the fiscal constraint.

Suggested Citation

  • Ms. Betty C. Daniel, 1997. "Fiscal Policy and the Predictability of Exchange Rate Collapse," IMF Working Papers 1997/133, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1997/133
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=2367
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    Citations

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    Cited by:

    1. Alexis Cruz-Rodriguez, 2013. "Choosing and Assessing Exchange Rate Regimes: a Survey of the Literature," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 28(2), pages 37-61, October.
    2. Daniel, Betty C, 2001. "A Fiscal Theory of Currency Crises," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 969-988, November.
    3. Tremblay, Rodrigue, 2000. "Les facteurs déclencheurs des crises financières internationales," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(3), pages 423-436, septembre.
    4. Niko Gobbin & Bruno Merlevede, 2000. "The Russian Crisis: A Debt Perspective," Post-Communist Economies, Taylor & Francis Journals, vol. 12(2), pages 141-163.
    5. Alexis Cruz Rodriguez, 2011. "Prediction of Currency Crises Using a Fiscal Sustainability Indicator," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 26(2), pages 39-60, December.
    6. Kirrane, Chris, 2018. "What Caused the Asian Currency?," MPRA Paper 93643, University Library of Munich, Germany.
    7. Kirrane, Christopher, 2018. "The Causes of Asian Currency Crises," MPRA Paper 89103, University Library of Munich, Germany.

    More about this item

    Keywords

    WP; credit creation;

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