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Fiscal Policy and the Real Exchange Rate by Mr.Santanu Chatterjee,Mr.Azer Mursagulov Pdf
Government spending on infrastructure has recently increased sharply in many emerging-market economies. This paper examines the mechanism through which public infrastructure spending affects the dynamics of the real exchange rate. Using a two-sector dependent open economy model with intersectoral adjustment costs, we show that government spending generates a non-monotonic U-shaped adjustment path for the real exchange rate with sharp intertemporal trade-offs. The effect of government spending on the real exchange rate depends critically on (i) the composition of public spending, (ii) the underlying financing policy, (iii) the intensity of private capital in production, and (iv) the relative productivity of public infrastructure. In deriving these results, the model also identifies conditions under which the predictions of the neoclassical open economy model can be reconciled with empirical regularities, namely the intertemporal relationship between government spending, private consumption, and the real exchange rate.
Fiscal Policy and the Real Exchange Rate by Santanu Chatterjee Pdf
This paper examines the mechanisms through which government spending affects the dynamics of the real exchange rate. Using a two-sector dependent open economy model with intersectoral mobility costs for private capital, we show that public investment generates a (i) non-monotonic U-shaped adjustment path for the real exchange rate with sharp intertemporal trade-offs, and (ii) a crowding-in of private consumption, consistent with stylized facts. The effects of public consumption, however, are in sharp contrast to those of public investment. The effect of government spending on the real exchange rate depends critically on (i) the sectoral composition of public spending, (ii) the underlying financing policy, (iii) the sectoral intensity of private capital in production, (iv) the relative sectoral productivity of public infrastructure, (v) the elasticity of substitution in production, and (vi) intersectoral mobility costs for capital. In deriving these results, we identify conditions under which the predictions of the neoclassical open economy model can be reconciled with empirical regularities. Our results underscore the importance of decoupling the effects of government investment from government consumption in understanding the relationship between fiscal policy and the real exchange rate.
Targeting the Real Exchange Rate by Mr.Guillermo Calvo,Ms.Carmen Reinhart,Mr.Carlos A. Végh Gramont Pdf
This paper presents a theoretical and empirical analysis of policies aimed at setting a more depreciated level of the real exchange rate. An intertemporal optimizing model suggests that, in the absence of changes in fiscal policy, a more depreciated level of the real exchange can only be attained temporarily. This can be achieved by means of higher inflation and/or higher real interest rates, depending on the degree of capital mobility. Evidence for Brazil, Chile, and Colombia supports the model’s prediction that undervalued real exchange rates are associated with higher inflation.
E. Murat Ucer,Pierre-Richard Agénor,Mr.C. John McDermott
Author : E. Murat Ucer,Pierre-Richard Agénor,Mr.C. John McDermott Publisher : International Monetary Fund Page : 31 pages File Size : 53,8 Mb Release : 1997-01-01 Category : Business & Economics ISBN : 9781451841596
Fiscal Imbalances, Capital Inflows, and the Real Exchange Rate by E. Murat Ucer,Pierre-Richard Agénor,Mr.C. John McDermott Pdf
This paper examines the links between fiscal policy, capital inflows, and the real exchange rate in Turkey since the late 1980s. After an overview of recent macroeconomic developments in Turkey, a vector autoregression model is estimated linking government spending, interest rate differentials, capital inflows, and the temporary component of the real exchange rate. Positive shocks to government spending and capital inflows lead to an appreciation of the temporary component of the real exchange rate, whereas positive shocks to the uncovered interest rate differential lead to a capital inflow and an appreciation of the temporary component of the real exchange rate. The findings highlight the role of fiscal adjustment in restoring macroeconomic stability.
Macroeconomic Policy by Martin Weale,Andrew Blake,Nicos Christodoulakis,James Meade,David Vines Pdf
This analysis of macroeconomic policy, originally published in 1989, argues that key government objectives, such as reduced inflation, decreased unemployment and an adequate level of national saving can be achieved only by employing both monetary and fiscal policies, in conjunction with supply-side policies expressly designed to improve the workings of the labour market. Part 1 is a comparative analysis showing the effects of monetary and fiscal policy on the economy. Real-wage rigidity in the labour market is shown to have important consequences for the working of both types of policy, because it conditions the economy’s response to tax changes. Part 2 presents an econometric model which combines consistent stock-flow accounts with a full range of expectational effects. Part 3 presents an innovative technique for solving rational expectations models with the need for arbitary terminal conditions.
Economic Policy, Exchange Rates, and the International System by Warner Max Corden Pdf
In an outstanding account of exchange rates inthe international monetary system, W. Max Corden considers the essential issues in international macroeconomics.The author takes as his model the macroeconomic situation of a country with an open economy, and explains the effects of domestic fiscal and monetary macroeconomic policy on exchange rates. He clearly analyses the choices faced by governments attempting to manage both the domestic inflation rateand the external exchange rate and current account balance. Professor Corden then discusses the European Exchange Rate mechanism, and provides a sceptical analysis of the possibilities for monetary union in Europe, and for international policy coordination in general. He gives equal weight todiscussion of the present US-centred international monetary system outside the ERM, and combines theoretical models with an account of the actual determination of floating exchange rates. Although the book itself is orientated towards monetary rather than trade issues, the author discusses twotopical issues: the role of protectionist policies, and the idea of competitiveness. Finally, he looks at the future of the international monetary system and the series of current reform proposals.Students will find this book useful because the author covers essential issues lucidly and authoritatively. The exposition is entirely non-mathematical. Postgraduate students and academics will be interested since Corden is a distinguished writer on international trade and policy, and hisarguments are powerfully presented.New to this edition:This is a revised and expanded edition of a previous book by Corden, Inflation, Exchange Rates and the World Economy, the third edition of which was published in 1985. In this new book, Professor Corden has fully rewritten the text, but retains the discursive, informal, reader-friendly style ofthe earlier editions. In this new edition, Professor Corden has included two new chapters which extend the treatment of macroeconomic policy, separating it into its fiscal and monetary branches. He also includes a new chapter on the role of the current account balance in determining macroeconomicpolicy. The author has brought his account of the present international monetary context up to date - characterised as the non-system - and has included a new analysis of European monetary issues, incorporating a review of the progress of the EMS towards full monetary union. The book also containsa provocative discussion of two highly topical issues: trade protection, and competitiveness, including both new theoretical analysis and such events as the recent GATT agreement.
Real Exchange Rate Targeting Under Imperfect Asset Substitutability by Mr.José Saúl Lizondo Pdf
This paper presents a model of an economy that uses nominal exchange rate policy to keep the real exchange rate constant at a certain target level, under imperfect asset substitutability. The paper discusses the determinants of inflation under such a policy, and examines the consequences of exogenous and policy-induced shocks on inflation, the external accounts, and the fiscal accounts. The shocks considered include changes in the real exchange rate target, changes in fiscal policy, changes in foreign interest rates, and open market sales of public sector domestic bonds.
Monetary and Fiscal Policy, the Exchange Rate and Foreign Wealth by Patrizio Tirelli Pdf
The book investigates issues of policy design in open economies. The performance of simple alternative policy rules is analysed in the context of theoretical models using both analytical solutions and numerical simulations techniques. One of the substantive contributions of the research is that policy evaluation should take into account, among other things, the implications of different rules for foreign wealth and the exchange rate. Hence the open economy models presented in the book include wealth effects and the current account.
Author : International Monetary Fund Publisher : International Monetary Fund Page : 48 pages File Size : 40,7 Mb Release : 1989-01-01 Category : Business & Economics ISBN : 9781451922875
Simulating the Effects of Some Simple Coordinated versus Uncoordinated Policy Rules by International Monetary Fund Pdf
Effects of different policy rules are simulated: uncoordinated targeting of the money supply or nominal income, use of monetary policy to achieve coordinated targets for nominal or real exchange rates, and the use of monetary and fiscal policies to hit targets for internal and external balance. The following conclusions emerge: rules which performed best for some shocks performed poorly for others; monetary policy was ineffective in limiting movements in real exchange rates; unconstrained use of fiscal policy was quite powerful in influencing real variables; and dynamic instability was a potentially serious problem. Robustness to different specifications and to constraints on instruments remains to be examined.
Trade and Tax Policy, Inflation and Exchange Rates by Assaf Razin,Hans-Jürgen Vosgerau Pdf
Ass a f R a z i nand Hans-Jiirgen Vosgerau The eight chapters of this volume have been grouped into two parts. Part A of contains chapters which are mainly monetary in character, whereas real aspects international economics are treated in Part B. It goes without saying that this is only a device for structuring the field. In substance most chapters reveal the close connections between real and monetary aspects. Part A on "Inflation, Exchange Rates, and Macro-Economic Adjustment in the Global Economy" consists of four papers. In recent years, an inflation targeting framework for monetary policy has been adopted by New Zealand, Canada, the United Kingdom, Finland, Sweden, Australia, and Spain (in chronological order). The use of inflation targeting can be viewed as a further step in the evolution of monetary policy techniques adopted by central banks. A common feature of the countries that have adopted inflation targets is the relatively poor inflation record over the last 30 years compared with other industrial countries such as Germany, Switzerland, Japan and the United States. Because of their relatively good inflation record, this latter group of countries has not explicitly adopted inflation targeting. With, or without, explicit inflation targeting the monetary policy credibility hinges on the independence of the central bank. Alex Cukierman addresses the issue of central bank independence by surveying alternative ways to characterize independence.
Real Exchange Rate Appreciation in Emerging Markets by Marialuz Moreno Badia,Mr.Alex Segura-Ubiergo Pdf
A number of emerging markets have experienced substantial real exchange rate appreciation in recent years, generating concerns about competitiveness and prompting policymakers to respond with a combination of mitigating policies. This paper shows that fiscal policy can play a role in alleviating these pressures. Using a sample of 28 emerging market economies over 1983-2011, we estimate a dynamic model of the real exchange rate and find that a permanent fiscal adjustment may reduce appreciation pressures over the long term. Furthermore, the composition of public spending matters, with reductions in current spending playing a key role. To illustrate the importance of these findings, the paper focuses on the case of Brazil. Our results suggest that maintaining fiscal discipline while increasing public investment in Brazil is likely to ease real appreciation pressures, highlighting the importance of tackling long-standing budget rigidities.
The Real Exchange Rate and Fiscal Policy During the Gold Standard Period by Graciela Laura Kaminsky,Michael W. Klein Pdf
We study the determinants of the dollar/pound real exchange rate from 1879 to 1914 focusing on the role of fiscal policy. We present a simple dynamic model of the real exchange rate to frame our analysis. The econometric results are based upon the decomposition of the sources of the innovation of the real exchange rate drawn from a structural vector autoregression model. We find little evidence that changes in tariffs and government spending affected the real exchange rate. There is some stronger empirical evidence that shocks to deficits were associated with the fluctuations in the real exchange rate.
Functioning of the International Monetary System by Mr.Jacob A. Frenkel,Mr.Morris Goldstein Pdf
The fiftieth anniversary of the Bretton Woods Conference served as an opportunity to reappraise the desirability of strengthening the IMF's oversight of the functioning of the international monetary system. Whatever the design of an exchange rate system and the arrangements for the provision of international liquidity, it is widely accepted that to be effective such oversight must rest on a strong analytic foundation. These two volumes, edited by Jacob A. Frenkel and Morris Goldstein, present 30 analytic papers on the system as it functioned during 1987-91 and aim at conveying the flavor of those issues that commanded close attention in the Fund's research program.
External Shocks, the Real Exchange Rate, and Tax Policy by Mr.Stephen Tokarick Pdf
This paper uses a computable general equilibrium model of the economy of Trinidad and Tobago to assess the effects of trade liberalization and terms-of-trade shocks on the real exchange rate and the overall fiscal position of the government. The model is also used to evaluate the implications of alternative tax policies designed to offset the increase in the budget deficit of the central government that results from both types of external sector shocks.
Currencies, Crises, Fiscal Policy, and Coordination by Paul R. Masson Pdf
This volume provides an integrated compilation of selected major articles published by the author in several fields of international finance. These include contributions to the understanding of currency crises and financial contagion, the evolution of exchange rate regimes, the interaction between national fiscal policies and regional monetary unions, and the effect of uncertainty on the gains from international economic policy coordination. The author spent most of his career doing research at established institutions (the Bank of Canada, OECD, and IMF), and these articles emerged from the need to understand the major economic policy issues of the day. In the book's introduction, the author discusses the motivation for these contributions and the unifying themes that emerged, while a concluding chapter provides his personal reflections and suggestions about promising avenues for further research.
