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Fiscal shocks and the exchange rate

Author

Listed:
  • Giorgio Di Giorgio

    (LUISS Guido Carli, Department of Economics and Finance, Rome (Italy))

  • Salvatore Nisticò

    (Dipartimento di Scienze Sociali ed Economiche, Sapienza University of Rome)

  • Guido Traficante

    (European University of Rome)

Abstract

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 dynamic open-economy models. Our analysis compares the classic Redux model of Obstfeld and Rogoff (1995) and a modern New Keynesian DSGE two-country model, and highlights the substantially different transmission mechanism between the two.

Suggested Citation

  • Giorgio Di Giorgio & Salvatore Nisticò & Guido Traficante, 2014. "Fiscal shocks and the exchange rate," Working Papers 5/14, Sapienza University of Rome, DISS.
  • Handle: RePEc:saq:wpaper:5/14
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    References listed on IDEAS

    as
    1. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
    2. Giorgio Di Giorgio & Salvatore Nisticò, 2007. "Monetary Policy and Stock Prices in an Open Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1947-1985, December.
    3. Thomas Lubik & Frank Schorfheide, 2006. "A Bayesian Look at New Open Economy Macroeconomics," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 313-382, National Bureau of Economic Research, Inc.
    4. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    5. Di Giorgio, Giorgio & Nisticò, Salvatore, 2013. "Productivity shocks, stabilization policies and the dynamics of net foreign assets," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 210-230.
    6. Cavallo, Michele & Ghironi, Fabio, 2002. "Net foreign assets and the exchange rate: Redux revived," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 1057-1097, July.
    7. Sims,Christopher A. (ed.), 1994. "Advances in Econometrics," Cambridge Books, Cambridge University Press, number 9780521444606, May.
    8. Smets, Frank & Wouters, Raf, 2002. "An estimated stochastic dynamic general equilibrium model of the euro area," Working Paper Series 171, European Central Bank.
    9. Kim, Soyoung & Roubini, Nouriel, 2009. "Erratum to "Twin deficit or twin divergence? Fiscal policy, current account, and real exchange rate in the U.S." [Journal of International Economics. Volume (74) 362-383]," Journal of International Economics, Elsevier, vol. 77(2), pages 276-276, April.
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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