Real Exchange Rate Effects of Fiscal Policy

Jeffrey David Sachs · Charles Wyplosz

52 citations0/0 files storedNational Bureau of Economic Research

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Monetary Policy and Economic Impact Global Financial Crisis and Policies Fiscal Policies and Political Economy

Abstract

This paper develops a framework for analyzing the effects of fiscal policy on the real exchange rate.The short-run impact of various types of fiscal measures are considered as well as the dynamics of adjustment to long-run steady states.The analysis and related simulations suggest that the effect of fiscal policy changes on the real exchange rate can vary widely and will depend closely on a number of structural features, including the degree of asset substitutability, the composition of government spending, and the initial size of the public debt and net external position.

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References

1985Debt, Deficits, and Finite Horizons 1962Domestic Financial Policies Under Fixed and Under Floating Exchange Rates 1977The Exchange Rate And The Balance of Payments In The Short Run and in The Long Run: A Monetary Approach 1976The Exchange Rate and the Balance of Payments in the Short Run and in the Long Run: A Monetary Approach 1982Monetary and Fiscal Policy with Flexible Exchange Rates

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