Fiscal Policy and the Exchange Rate-Current Account Nexus [electronic resource] / Jun Il Kim.
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TextSeries: IMF Working Papers; Working Paper ; No. 07/27Publication details: Washington, D.C. : International Monetary Fund, 2007Description: 1 online resource (13 p.)ISBN: 1451865910 :ISSN: 1018-5941Subject(s): Consumption Smoothing | Exchange Rate Elasticity of Trade Balance | Exchange Rate | Fiscal Policy | Government Spending | Real Exchange RateAdditional physical formats: Print Version:: Fiscal Policy and the Exchange Rate-Current Account NexusOnline resources: IMF e-Library | IMF Book Store Abstract: By using a simple intertemporal model of the current account, I. show.that the exchange rate elasticity of the trade balance would ceteris paribus be smaller for countries with higher government spending ratios (relative to GDP) and with more limited scope for private consumption smoothing. This finding may have important implications for the design of adjustment programs and for resolving current global imbalances. It could also help explain and reconcile mixed empirical findings on trade elasticities.
By using a simple intertemporal model of the current account, I. show.that the exchange rate elasticity of the trade balance would ceteris paribus be smaller for countries with higher government spending ratios (relative to GDP) and with more limited scope for private consumption smoothing. This finding may have important implications for the design of adjustment programs and for resolving current global imbalances. It could also help explain and reconcile mixed empirical findings on trade elasticities.
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