Fiscal Policy and Exchange Rates

Annicchiarico, Barbara

doi:10.2139/ssrn.383000

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Fiscal Policy and Exchange Rates

34 Pages Posted: 7 Mar 2003

See all articles by Barbara Annicchiarico

Barbara Annicchiarico

Roma Tre University - Department of Law

Date Written: March 2003

Abstract

This paper examines the dynamics of the nominal exchange rate and fiscal deficits in a continuous time optimizing general equilibrium model with finite horizon. It is shown that alternative financing modes of budget deficits imply different patterns of adjustment along the transitional path towards the steady state equilibrium. In particular, the respect of public solvency without money financing is not suffcient to avoid the depreciation of the exchange rate in the long-run after a fiscal expansion.

Keywords: Exchange Rates, Fiscal Deficits, Current Account Dynamics

JEL Classification: F31, F32, E62

Suggested Citation: Suggested Citation

Annicchiarico, Barbara, Fiscal Policy and Exchange Rates (March 2003). Available at SSRN: https://ssrn.com/abstract=383000 or http://dx.doi.org/10.2139/ssrn.383000