Fiscal shocks and the exchange rate

Giorgio Di Giorgio, Salvatore Nistico' Author-Name-First Salvatore () and Guido Traficante
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Salvatore Nistico' Author-Name-First Salvatore: University of Rome Sapienza

No 1401, Working Papers CASMEF from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: This paper shows that the result implied by the Redux model of Obstfeld and Rogoff (1995) - that the exchange rate depreciates in response to balanced-budget fiscal expansions - is completely reversed once we account for two key features of modern New Open Economy Macroeconomics models: home bias in public consumption and endogenous monetary policy.

Keywords: Redux Model; Exchange Rate; Fiscal Shocks; Endogenous Monetary and Fiscal Policy. (search for similar items in EconPapers)
JEL-codes: E43 E44 E50 E52 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mac and nep-opm
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Working Paper: Fiscal shocks and the exchange rate (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:lui:casmef:1401

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