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Fiscal Constraints Of A Fixed Exchange Rate Regime
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Book Synopsis Fiscal Constraints of a Fixed Exchange Rate Regime by : International Monetary Fund
Download or read book Fiscal Constraints of a Fixed Exchange Rate Regime written by International Monetary Fund and published by International Monetary Fund. This book was released on 1989-12-29 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper considers whether the implementation of a fixed exchange rate regime requires or implies binding constraints on fiscal policy. The main conclusions are that, from a country perspective, the effective constraint is on the degree of monetary financing, which bears an uncertain relationship to the size of the budget deficit; that, from a systemic perspective, the financial stability of the currency area can be ensured by making the monetary and fiscal authorities independent of one another; and that the case for coordination of fiscal policies—whatever its merits—is not enhanced by the creation of a fixed exchange rate regime.
Book Synopsis Fiscal Policy and the Predictability of Exchange Rate Collapse by : Ms.Betty C. Daniel
Download or read book Fiscal Policy and the Predictability of Exchange Rate Collapse written by Ms.Betty C. Daniel and published by International Monetary Fund. This book was released on 1997-10-01 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is well known that the long-run viability of a fixed exchange rate regime imposes constraints on monetary policy. This paper shows that, in a model with forward-looking agents, short-run viability imposes a fiscal constraint. When policy change, which destroys long-run viability, also violates the fiscal constraint, collapse is instantaneous. Delayed predictable collapse requires satisfaction of the fiscal constraint.
Book Synopsis Fiscal Policy and the Predictability of Exchange Rate Collapse by : Betty Daniel
Download or read book Fiscal Policy and the Predictability of Exchange Rate Collapse written by Betty Daniel and published by . This book was released on 2006 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is well known that the long-run viability of a fixed exchange rate regime imposes constraints on monetary policy. This paper shows that, in a model with forward-looking agents, short-run viability imposes a fiscal constraint. When policy change, which destroys long-run viability, also violates the fiscal constraint, collapse is instantaneous. Delayed predictable collapse requires satisfaction of the fiscal constraint.
Book Synopsis Intertemporal Adjustment and Fiscal Policy Under a Fixed Exchange Rate Regime by : Marcel Aloy
Download or read book Intertemporal Adjustment and Fiscal Policy Under a Fixed Exchange Rate Regime written by Marcel Aloy and published by World Bank Publications. This book was released on 2008 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: 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.
Book Synopsis Do Fixed Exchange Rates Induce More Fiscal Discipline? by : Mr.Yan Sun
Download or read book Do Fixed Exchange Rates Induce More Fiscal Discipline? written by Mr.Yan Sun and published by International Monetary Fund. This book was released on 2003-04-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Conventional wisdom has held that a fixed exchange rate regime induces more fiscal discipline, but Tornell and Velasco (1995, 1998) argue the opposite. Using a dynamic model with fragmented fiscal policymaking, this paper evaluates the two arguments in a single framework and shows that (1) future punishment against fiscal laxity exists under both fixed and flexible regimes; (2) fiscal authorities have a greater incentive to spend more today under fixed rates than under flexible rates; (3) in the presence of both factors above, fixed rates will induce more fiscal discipline only if the future punishment is sufficiently stronger than under flexible rates; and (4) neither fixed nor flexible rates could resolve the structural distortions caused by fragmented policymaking, and fiscal centralization needs to be undertaken to strengthen fiscal discipline.
Author :International Monetary Fund Publisher :International Monetary Fund ISBN 13 :9781557751331 Total Pages :394 pages Book Rating :4.7/5 (513 download)
Book Synopsis Choosing an Exchange Rate Regime by : International Monetary Fund
Download or read book Choosing an Exchange Rate Regime written by International Monetary Fund and published by International Monetary Fund. This book was released on 1990-09-15 with total page 394 pages. Available in PDF, EPUB and Kindle. Book excerpt: This collection of papers, edited by Victor Argy and Paul De Grauwe, examines issues surrounding the choice of exchange rate regime in smaller industrial countries. It contains a comprehensive summary by Jacques J. Polak.
Book Synopsis What Does Really Discipline Fiscal Policy in Emerging Markets? The Role and Dynamics of Exchange Rate Regimes by : Enrique Alberola
Download or read book What Does Really Discipline Fiscal Policy in Emerging Markets? The Role and Dynamics of Exchange Rate Regimes written by Enrique Alberola and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Fixing the exchange rate stabilises inflation and reduces monetary seignoriage, a key source of financing under the fiscal dominance hypothesis. However, the link between fixed exchange rate regimes and fiscal discipline in emerging markets has been found to be weak. This paper thoroughly reviews the issue through three venues. First, an alternative measure to gauge fiscal discipline -the so called shadow balance, inclusive of seignoriage revenues- is proposed, since the traditional one, the primary balance, does not convey monetary financing; notwithstanding this modification, no robust relation is found either. Second, we sustain and then prove the hypothesis that fixing the exchange rate may have offsetting effects on fiscal discipline through the relaxation of the fiscal constraint of the government. In particular fixing the exchange rate is expected to reduce the cost and burden of debt and to enhance the ability to obtain revenues through a higher level of activity. The empirical test of this hypothesis follows a two stage approach. First, we test the impact of the fiscal constraints on discipline: as advocated, a higher fiscal burden induces higher discipline; higher activity does not clearly relax discipline, although expenditures grow and the burden of debt is shown to diminish. The second stage tests the impact of fixed regime on the considered determinants. Again, the relation between fixed regimes and the reduction of the burden is robust, but not so the impact of fixed regimes on the cycle. Third, we explore the dynamics related to the pegging of the exchange rate, uncovering that at its inception exchange rates trigger an expansion and reduce the debt burden. This final outcome does not only strengthen our hypothesis but illustrates how the peg sows the seeds of its own destruction, also at the fiscal level.
Book Synopsis Fiscal Discipline and Exchange Rates by : João Tovar Jalles
Download or read book Fiscal Discipline and Exchange Rates written by João Tovar Jalles and published by International Monetary Fund. This book was released on 2016-11-17 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We look at the effect of exchange rate regimes on fiscal discipline, taking into account the effect of underlying political conditions. We present a model where strong politics (defined as policymakers facing longer political horizon and higher cohesion) are associated with better fiscal performance, but fixed exchange rates may revert this result and lead to less fiscal discipline. We confirm these hypotheses through regression analysis performed on a panel sample covering 79 countries from 1975 to 2012. Our empirical results also show that the positive effect of strong politics on fiscal discipline is not enough to counter the negative impact of being at/moving to fixed exchange rates. Finally, we use the synthetic control method to illustrate how the transition from flexible to fully fixed exchange rate under the Euro impacted negatively fiscal discipline in European countries. Our results are robust to a number of important sensitivity checks, including different estimators, alternative proxies for fiscal discipline, and sub-sample analysis.
Book Synopsis Fiscal Prerequisites for a Viable Managed Exchange Rate Regime by : Willem H. Buiter
Download or read book Fiscal Prerequisites for a Viable Managed Exchange Rate Regime written by Willem H. Buiter and published by . This book was released on 1986 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper first reviews the budget identities of the fiscal and monetary authorities and the solvency constraint or present value budget-constraint of the consolidated public sector, for closed and open economies. It then discusses the new conventional wisdom concerning the fiscal roots of inflation and the budgetary prerequisites for generating and stopping hyperinflation. The popular rational expectations "Unpleasant Monetarist Arithmetic" model of Sargent and Wallace has ambiguous inflation implications from an increase in the fundamental deficit and is incapable of generating hyperinflation. The only runaway, explosive or unstable behavior it can exhibit is "hyperdeflation"! In the open economy, the need to maintain a managed exchange rate regime does not impose any constraint on the growth rate of domestic credit, arising through the government's need to remain solvent. Obstfeld's proposition to the contrary is due to the omission of government bonds and borrowing. There is not yet any "deep structural" theory justifying the (exogenous) lower bounds on the stock of foreign exchange reserves characteristic of the collapsing exchange rate literature. Absent such a theory of "international liquidity," one cannot model satisfactorily a foreign exchange crisis that is not at the same time a government solvency crisis. Given such a lower bound, the existence or absence of a pecuniary opportunity cost to holding reserves is shown to condition the fiscal and financial actions consistent with prolonged survival of the managed exchange rate regime
Book Synopsis Monetary and Fiscal Rules in an Emerging Small Open Economy by : Nicoletta Batini
Download or read book Monetary and Fiscal Rules in an Emerging Small Open Economy written by Nicoletta Batini and published by . This book was released on 2009 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a optimal rules-based interpretation of the 'three pillars macroeconomic policy framework': a combination of a freely floating exchange rate, an explicit target for inflation, and a mechanism than ensures a stable government debt-GDP ratio around a specified long run. We show how such monetary-fiscal rules need to be adjusted to accommodate specific features of emerging market economies. The model takes the form of two-blocs, a DSGE emerging small open economy interacting with the rest of the world and features, in particular, financial frictions It is calibrated using Chile and US data. Alongside the optimal Ramsey policy benchmark, we model the three pillars as simple monetary and fiscal rules including and both domestic and CPI inflation targeting interest rate rules alongside a 'Structural Surplus Fiscal Rule' as followed recently in Chile. A comparison with a fixed exchange rate regime is made. We find that domestic inflation targeting is superior to partially or implicitly (through a CPI inflation target) or fully attempting to stabilizing the exchange rate. Financial frictions require fiscal policy to play a bigger role and lead to an increase in the costs associated with simple rules as opposed to the fully optimal policy.
Book Synopsis Fiscal Discipline and Exchange Rate Regimes by : Matthew B. Canzoneri
Download or read book Fiscal Discipline and Exchange Rate Regimes written by Matthew B. Canzoneri and published by . This book was released on 1998 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Balance Sheets, Exchange Rate Policy, and Welfare by : Selim Elekdag
Download or read book Balance Sheets, Exchange Rate Policy, and Welfare written by Selim Elekdag and published by International Monetary Fund. This book was released on 2004-04 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: The debate about the appropriate choice of exchange rate regime is fundamental in international economics. This paper develops a small open-economy model with balance sheet effects and compares the performance of fixed and flexible exchange rate regimes. The model is solved up to a second-order approximation which allows us to address the issue of risk and welfare rigorously. The paper identifies threshold levels of the debt-to-GDP ratio above which fixed exchange rate regimes are welfare superior to monetary policy rules that imply flexible exchange rate regimes. The results suggest that emerging market economies that suffer from a relatively high level of indebtedness and are constrained in their pursuit of optimal monetary policy, could find it beneficial to opt for a fixed exchange rate regime.
Book Synopsis Fiscal Discipline and the Choice of Exchange Rate Regime by : Aaron Tornell
Download or read book Fiscal Discipline and the Choice of Exchange Rate Regime written by Aaron Tornell and published by . This book was released on 1994 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis External Constraints on Macroeconomic Policy by : George Alogoskoufis
Download or read book External Constraints on Macroeconomic Policy written by George Alogoskoufis and published by Cambridge University Press. This book was released on 1991 with total page 428 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book from the Centre for Economic Policy Research deals with the implications of the exchange rate regimes and capital flows of the 1990s for government macroeconomic policy-making and EC policy co-ordination.
Book Synopsis Money-based Versus Exchange Rate-based Stabilization with Endogenous Fiscal Policy by : Aaron Tornell
Download or read book Money-based Versus Exchange Rate-based Stabilization with Endogenous Fiscal Policy written by Aaron Tornell and published by . This book was released on 1995 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Intertemporal Adjustment and Fiscal Policy Under a Fixed Exchange Rate Regime by : Marcel Aloy
Download or read book Intertemporal Adjustment and Fiscal Policy Under a Fixed Exchange Rate Regime written by Marcel Aloy and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Flexible Exchange Rates for a Stable World Economy by : Joseph E. Gagnon
Download or read book Flexible Exchange Rates for a Stable World Economy written by Joseph E. Gagnon and published by Peterson Institute. This book was released on 2011 with total page 301 pages. Available in PDF, EPUB and Kindle. Book excerpt: Volatile exchange rates and how to manage them are a contentious topic whenever economic policymakers gather in international meetings. This book examines the broad parameters of exchange rate policy in light of both high-powered theory and real-world experience. What are the costs and benefits of flexible versus fixed exchange rates? How much of a role should the exchange rate play in monetary policy? Why don't volatile exchange rates destabilize inflation and output? The principal finding of this book is that using monetary policy to fight exchange rate volatility, including through the adoption of a fixed exchange rate regime, leads to greater volatility of employment, output, and inflation. In other words, the "cure" for exchange rate volatility is worse than the disease. This finding is demonstrated in economic models, in historical case studies, and in statistical analysis of the data. The book devotes considerable attention to understanding the reasons why volatile exchange rates do not destabilize inflation and output. The book concludes that many countries would benefit from allowing greater flexibility of their exchange rates in order to target monetary policy at stabilization of their domestic economies. Few, if any, countries would benefit from a move in the opposite direction.
