Stabilisation and rebalancing with fiscal or monetary devaluation: a model-based comparison

Lukas Vogel

No 22, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: The paper uses a small open economy general-equilibrium model to compare fiscal and nominal exchange rate devaluation with respect to their impact on economic activity and the current account. In particular, it investigates the extent to which fiscal devaluation mimics nominal exchange rate adjustment and mitigates the output loss associated with demand rebalancing and external adjustment. The results suggest that internal or external devaluation can support external adjustment and mitigate its impact on economic activity, without leading to lasting adjustment themselves. However, the quantitative contribution of a tax shift from labour to consumption, the standard example of fiscal devaluation, remains moderate.

JEL-codes: E52 F41 F47 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2015-12
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
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Citations: View citations in EconPapers (1)

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https://economy-finance.ec.europa.eu/publications/ ... -based-comparison_en (application/pdf)

Related works:
Journal Article: Stabilization and Rebalancing with Fiscal or Monetary Devaluation: a Model-Based Comparison (2017)
Working Paper: Stabilisation and Rebalancing with Fiscal or Monetary Devaluation: A Model-Based Comparison (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:022

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