Fiscal Policy and the Predictability of Exchange Rate Collapse

Betty Daniel

No 1997/133, IMF Working Papers from International Monetary Fund

Abstract: It is well known that the long-run viability of a fixed exchange rate regime imposes constraints on monetary policy. This paper shows that, in a model with forward-looking agents, short-run viability imposes a fiscal constraint. When policy change, which destroys long-run viability, also violates the fiscal constraint, collapse is instantaneous. Delayed predictable collapse requires satisfaction of the fiscal constraint.

Keywords: WP; credit creation (search for similar items in EconPapers)
Pages: 18
Date: 1997-10-01
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Citations: View citations in EconPapers (7)

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