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Journal of Economics

, Volume 89, Issue 2, pp 165–185 | Cite as

Fiscal Policy and Exchange Rates

  • Barbara Annicchiarico
Article

Abstract

This paper examines the dynamics of the nominal exchange rate and fiscal deficits in a continuous time optimizing general equilibrium model with OLG. It is shown that alternative financing modes of budget deficits imply different patterns of adjustment along the transitional path towards the steady-state equilibrium. In particular, the respect of public solvency without money financing is not sufficient to avoid the depreciation of the exchange rate in the long-run after a fiscal expansion. In addition, money and tax financing generate opposite intergenerational reallocation of wealth.

Keywords

exchange rates fiscal deficits current account dynamics 

JEL Classifications

F31 F32 E62 

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Copyright information

© Springer-Verlag Wien 2006

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of Rome ``Tor Vergata''RomaItaly

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