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Fiscal Discipline And Exchange Rates
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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 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.
Book Synopsis Fiscal Discipline & Exchange Rate Regimes' by : Enrique Alberola
Download or read book Fiscal Discipline & 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: Empirical evidence shows that fixed exchange rates do not provide more fiscal discipline than flexible regimes, despite the fact that, in principle, fixing the exchange rate imposes important restrictions on seignoriage revenues. A more detailed analysis of seignoriage allows to explain the channels whereby monetary financing is possible in the short and medium run even in a exchange rate peg. More precisely, it is argued that the traditional concept of money seignoriage is misguiding and that fiscal seignoriage, defined as the actual revenues accruing to govern from the Central Bank, is a key variable to determine fiscal discipline. The paper shows that a peculiar version of fixed regimes, the currency boards, may effectively restrain fiscal policy by ruling out fiscal seignoriage. An indirect confirmation of these hypotesis is advanced by observing the empirical link between monetary seignoriage and fiscal seignoriage, and their relation with fiscal discipline.
Book Synopsis Fiscal Discipline and Exchange Rate Regimes by : Rupa Duttagupta
Download or read book Fiscal Discipline and Exchange Rate Regimes written by Rupa Duttagupta and published by International Monetary Fund. This book was released on 2006-05 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper assesses the nature of fiscal discipline under alternative exchange rate regimes. First, it shows in a simple theoretical framework that fiscal agencies under a currency union with a fixed exchange rate can have the largest incentive to overspend or "free-ride" (compared to those under other exchange rate regimes) owing to their ability to spread the costs of overspending in terms of the inflation tax across both time-given the fixed exchange rate-and space-given the currency union. In contrast, such free-riding behavior does not arise under flexible regimes owing to the immediate inflationary impact of spending. Next, empirically, it shows that fiscal stances in countries with fixed pegs and currency unions regime demonstrate greater free-riding behavior than countries with more flexible regimes in 15 Caribbean countries during 1983-2004.
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 Fixed Versus Flexible Exchange Rates by : Aaron Tornell
Download or read book Fixed Versus Flexible Exchange Rates written by Aaron Tornell and published by . This book was released on 1995 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent years the conventional wisdom has held that fixed rates provide more fiscal discipline than do flexible rates. In this paper we show that this wisdom need not hold in a standard model in which fiscal policy is endogenously determined by a maximizing fiscal authority. The claim that fixed rates induce more discipline stresses that sustained adoption of lax fiscal policies must eventually lead to an exhaustion of reserves and thus to a politically costly collapse of the peg. Hence, under fixed rates bad behavior today leads to punishment tomorrow. Under flexible rates bad behavior has costs as well. The difference is in the intertemporal distribution of these costs: flexible rates allow the effects of unsound fiscal policies to manifest themselves immediately through movements in the exchange rate. Hence, bad behavior today leads to punishment today. If fiscal authorities are impatient, flexible rates - by forcing the costs to be paid up-front - provide more fiscal discipline and higher welfare for the representative private agent. The recent experience of Sub- Saharan countries supplies some preliminary evidence that matches the predictions of the model.
Book Synopsis Fiscal Discipline & Exchange Rate Regimes by : Enrique Alberola Ila
Download or read book Fiscal Discipline & Exchange Rate Regimes written by Enrique Alberola Ila and published by . This book was released on 2000 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Impact of Fixed Exchange Rates on Fiscal Discipline by : Makram el- Shagi
Download or read book The Impact of Fixed Exchange Rates on Fiscal Discipline written by Makram el- Shagi and published by . This book was released on 2009 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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 On Promoting Fiscal Discipline by : Kady Keita
Download or read book On Promoting Fiscal Discipline written by Kady Keita and published by . This book was released on 2019 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines how fiscal rules, exchange rate regimes, and institutional quality affect the cyclical behavior of fiscal policy (how government spending responds to fluctuations in gross domestic product). The analysis is performed on a panel of 153 advanced, emerging, and developing countries over 1993-2015 using local Gaussian-weighted ordinary least squares and two-stage least squares estimators. The findings show that the adoption of fiscal rules alone is not sufficient to promote countercyclical fiscal policy and should be combined with strong institutions. Moreover, fiscal rules seem to limit procyclicality, especially in countries with flexible exchange rate regimes rather than in countries with fixed exchange rates. The analysis also finds that the disciplining effect of fiscal rules depends on the type of rule.
Book Synopsis Exchange-Rate-Based Stabilization by : Mr.A. Javier Hamann
Download or read book Exchange-Rate-Based Stabilization written by Mr.A. Javier Hamann and published by International Monetary Fund. This book was released on 1999-10-01 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: Do exchange-rate-based stabilizations generate distinctive economic dynamics? To address this question, this paper identifies stabilization episodes using criteria that differ from those in previous empirical studies of exchange-rate-based stabilizations. We find that, while some differences can be detected between exchange-rate-based stabilizations and stabilizations where the exchange rate is not the anchor, the behavior of important variables does not appear to differ—especially output growth, which is good in both cases. There is also no evidence that fiscal discipline is enhanced by adopting an exchange-rate anchor, or that there are any systematic differences in the success records of stabilizations that use the exchange rate as a nominal anchor and those that do not.
Book Synopsis Exchange Rate Policy in Developing Countries: Some Analytical Issues by : Bijan B. Aghevli
Download or read book Exchange Rate Policy in Developing Countries: Some Analytical Issues written by Bijan B. Aghevli and published by World Bank Publications. This book was released on 1991-05-15 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper addresses analytical aspects of exchange rate policy and emphasizes the relationship among exchange rate flexibility, financial discipline, and international competitiveness.
Book Synopsis On Fiscal Discipline and the Choice of Exchange Rate Regime by : Yan Sun
Download or read book On Fiscal Discipline and the Choice of Exchange Rate Regime written by Yan Sun and published by . This book was released on 2000 with total page 262 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Relevance of Fiscal Conditions for the Success of European Monetary Integration by : International Monetary Fund
Download or read book The Relevance of Fiscal Conditions for the Success of European Monetary Integration written by International Monetary Fund and published by International Monetary Fund. This book was released on 1989-01-01 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper argues that international differences in fiscal conditions influence the relative attractiveness of locating production facilities in different countries and could prove to be a troublesome source of instability for the European economies. Even though physical capital movements tend to occur slowly, divergent fiscal conditions can exert pressures on exchange rates in the short run, and the monetary policy reactions induced in a fixed exchange rate regime may affect real wage rates and/or employment levels. The implications for tax harmonization and budget discipline are discussed. It is argued that monetary integration itself will not induce fiscal discipline.
Book Synopsis IMF Working Papers by : Guillermo Tolosa
Download or read book IMF Working Papers written by Guillermo Tolosa and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Promoting Fiscal Discipline by : Mr.Manmohan S. Kumar
Download or read book Promoting Fiscal Discipline written by Mr.Manmohan S. Kumar and published by International Monetary Fund. This book was released on 2007-10-18 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt: Fiscal discipline is essential to improve and sustain economic performance, maintain macroeconomic stability, and reduce vulnerabilities. Discipline is especially important if countries, industrial as well as developing, are to successfully meet the challenges, and reap the benefits, of economic and financial globalization. Lack of fiscal discipline generally stems from the injudicious use of policy discretion. The benefits of discretion are seen in terms of the ability of policymakers to respond to unexpected shocks and in allowing elected political representatives to fulfill their mandates. But discretion can be misused, resulting in persistent deficits and procyclical policies, rising debt levels, and, over time, a loss in policy credibility. The authors first explore the role of discretion in fiscal policy, and the extent, consequences, and causes of procyclicality, particularly in good times. They then examine how a variety of institutional approaches—fiscal rules, fiscal responsibility laws, and fiscal agencies—can help improve fiscal discipline. While each of these approaches can play a useful role, the authors suggest that a strategy combining them is likely to be particularly beneficial. Although such a strategy requires political commitment and effective fiscal management, at the same time, the strategy itself can bolster political commitment by highlighting the restraints on government and raising the costs of failing to respect them.
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.
