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Foreign debt, distribution, inflation, and growth in an SFC model

Pablo Bortz

European Journal of Economics and Economic Policies: Intervention, 2014, vol. 11, issue 3, 269-299

Abstract: We present an open economy growth model, using Stock-Flow Consistent (SFC) methodology. Our contribution is to add the possibility of one country issuing debt denominated in another country's currency, as well as allowing its firms to borrow from foreign banks. We investigate the effects and interactions that these features have on trade and financial flows, income distribution, foreign debt, and fiscal and monetary policy. Our results point towards the dismissal of the ‘twin deficit’ view, and support an active management of the exchange rate, in light of contradictory effects of fixed and flexible exchange rate regimes, according to the circumstances.

Keywords: Stock-Flow Consistent models; exchange rate policy; income distribution; twin deficits; external debt (search for similar items in EconPapers)
JEL-codes: E12 E24 E31 E44 F32 F43 (search for similar items in EconPapers)
Date: 2014
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