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Real Exchange Rate Effects of Fiscal Policy

  • Jeffrey Sachs
  • Charles Wyplosz

This paper develops a framework for analyzing the effects of fiscal policy on the real exchange rate. The short-run impact of various types of fiscal measures are considered as well as the dynamics of adjustment to long-run steady states. The analysis and related simulations suggest that the effect of fiscal policy changes on the real exchange rate can vary widely and will depend closely on a number of structural features, including the degree of asset substitutability,the composition of government spending, and the initial size of the public debt and net external position.

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File URL: http://www.nber.org/papers/w1255.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1255.

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Date of creation: Jan 1984
Date of revision:
Handle: RePEc:nbr:nberwo:1255
Note: ITI IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Web page: http://www.nber.org
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  1. Kouri, Pentti J K, 1976. " The Exchange Rate and the Balance of Payments in the Short Run and in the Long Run: A Monetary Approach," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 280-304.
  2. Branson, William H, 1976. "The Dual Roles of the Government Budget and the Balance of Payments in the Movement from Short-Run to Long-Run Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 345-67, August.
  3. Hodrick, Robert J., 1980. "Dynamic effects of government policies in an open economy," Journal of Monetary Economics, Elsevier, vol. 6(2), pages 213-239, April.
  4. William H. Branson & Willem H. Buiter, 1982. "Monetary and Fiscal Policy with Flexible Exchange Rates," NBER Working Papers 0901, National Bureau of Economic Research, Inc.
  5. Turnovsky, Stephen J., 1976. "The dynamics of fiscal policy in an open economy," Journal of International Economics, Elsevier, vol. 6(2), pages 115-142, May.
  6. Christ, Carl F, 1979. "On Fiscal and Monetary Policies and the Government Budget Restraint," American Economic Review, American Economic Association, vol. 69(4), pages 526-38, September.
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