Fiscal Policy and Exchange Rates

Barbara Annicchiarico ()

CEIS Research Paper from Tor Vergata University, CEIS

Abstract: This paper examines the dynamics of the nominal exchange rate and fiscal deficits in a continuous time optimizing general equilibrium model with finite horizon. It is shown that alternative financing modes of budget deficits imply different patterns of adjustment along the transitional path towards the steady state equilibrium. In particular, the respect of public solvency without money financing is not suffcient to avoid the depreciation of the exchange rate in the long-run after a fiscal expansion.

Keywords: Exchange Rates; Fiscal Deficits; Current Account Dynamics (search for similar items in EconPapers)
JEL-codes: F31 F32 E62 (search for similar items in EconPapers)
Date: 2003-06-07
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Journal Article: Fiscal Policy and Exchange Rates (2006)
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