THE EFFECTS OF FISCAL SHOCKS ON THE EXCHANGE RATE IN SPAIN

Francisco de Castro Fernández () and Laura Fernández
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Laura Fernández: Banco de Sabadell

The Economic and Social Review, 2013, vol. 44, issue 2, 151-180

Abstract: We analyse the impact of fiscal shocks on the Spanish effective exchange rate over the period 1981-2008 using a standard structural VAR framework. Government spending brings about positive responses of output and private consumption, jointly with real appreciation and a fall in trade balances. Real appreciation is explained by persistent nominal appreciation and higher relative prices. Accordingly, our results are largely consistent with the predictions of not only the conventional Mundell-Fleming model, but also of a number of New Keynesian models under standard calibrations. Moreover, our estimations are also consistent with the “twin deficits” hypothesis.

Date: 2013
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Related works:
Working Paper: The effects of fiscal shocks on the exchange rate in Spain (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eso:journl:v:44:y:2013:i:2:p:151-180

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