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Intertemporal Adjustment and Fiscal Policy Under A Fixed Exchange Rate Regime / Aloy, Marcel
World Bank Open Knowledge Repository (formerly "World Bank E-Library Publications") Available online
View online- Format:
- Book
- Government document
- Author/Creator:
- Aloy, Marcel
- Series:
- Policy research working papers.
- World Bank e-Library.
- Language:
- English
- Subjects (All):
- Currencies and Exchange Rates.
- Currency.
- Currency board.
- Debt Markets.
- Economic Stabilization.
- Economic Theory and Research.
- Emerging Markets.
- Finance and Financial Sector Development.
- Fiscal Policy.
- Fixed Exchange Rate.
- Fixed Exchange Rate Regime.
- Macroeconomic stability.
- Macroeconomics and Economic Growth.
- Monetary policy.
- Open economies.
- Poverty Reduction.
- Private Sector Development.
- Real exchange rate.
- Local Subjects:
- Currencies and Exchange Rates.
- Currency.
- Currency board.
- Debt Markets.
- Economic Stabilization.
- Economic Theory and Research.
- Emerging Markets.
- Finance and Financial Sector Development.
- Fiscal Policy.
- Fixed Exchange Rate.
- Fixed Exchange Rate Regime.
- Macroeconomic stability.
- Macroeconomics and Economic Growth.
- Monetary policy.
- Open economies.
- Poverty Reduction.
- Private Sector Development.
- Real exchange rate.
- Physical Description:
- 1 online resource (33 pages)
- Place of Publication:
- Washington, D.C., The World Bank, 2008
- System Details:
- data file
- Summary:
- The paper presents a dynamic model for small to medium open economies operating under a fixed exchange rate regime. The model provides a partial explanation of the channels through which fiscal and monetary policy affects the real exchange rate. An empirical investigation is conducted for the case of Argentina during the currency board period of 1991-2001. Empirical estimates show that fiscal policy may indeed be an efficient instrument for promoting macroeconomic stability insofar as it encourages convergence toward long-run equilibrium and alters the long-term balance between exports and consumption, both private and public. The simulation applied to Argentina shows that if the share of public spending in the economy is higher than the share of imports, an increase in the tax rate will stimulate capital stock slightly, at least in the short term, and depreciate the real effective exchange rate. In the long run, the fiscal policy affects the value of the real exchange rate and consequently external competitiveness.
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