Aloy, Marcel
Intertemporal Adjustment and Fiscal Policy Under A Fixed Exchange Rate Regime Aloy, Marcel [electronic resource] / Aloy, Marcel - Washington, D.C., The World Bank, 2008 - 1 online resource (33 p.) - Policy research working papers. World Bank e-Library. .
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.
10.1596/1813-9450-4607
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
Intertemporal Adjustment and Fiscal Policy Under A Fixed Exchange Rate Regime Aloy, Marcel [electronic resource] / Aloy, Marcel - Washington, D.C., The World Bank, 2008 - 1 online resource (33 p.) - Policy research working papers. World Bank e-Library. .
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.
10.1596/1813-9450-4607
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