Fiscal Policy and Exchange Rates ∗
نویسنده
چکیده
This paper examines the dynamics of the nominal exchange rate and fiscal deficits in a continuous time optimising general equilibrium model with finite horizon. It is shown that alternative financing modes of budget deficits imply different patterns of adjustment and that fiscal policy may provide the nominal anchor for the exchange rate. Our major finding is that after a fiscal expansion the respect of public solvency without money financing is not sufficient to avoid the depreciation of the exchange rate in the long-run.
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