The Dynamics of Real Exchange Rate and Financial Assets of Contractionary Fiscal Policies cum Private Dissavings

Angel Calderón-Madrid
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Angel Calderón-Madrid: El Colegio de Mexico

Chapter 2 in The Role of Private Financial Wealth in a Portfolio Model, 1995, pp 31-65 from Palgrave Macmillan

Abstract: Abstract In analyses of the last few years of developments concerning the balance of payments in countries such as the UK, Australia and Mexico, a commonly found claim is that current account deficits, when associated with private sector dissavings, should not be a reason for concern. One of the arguments behind this claim is that unlike public sector dissavings – that is, fiscal deficits – those corresponding to the private sector should be self-correcting in the long run. The reasoning is that agents of the private sector are not going to ignore their ex-ante intertemporal budget constraint. This implies that they will eventually want to bring spending into line with their underlying asset and debt positions.

Keywords: Exchange Rate; Current Account; Real Exchange Rate; Financial Asset; Private Expenditure (search for similar items in EconPapers)
Date: 1995
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-37554-3_2

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DOI: 10.1057/9780230375543_2

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