Fiscal shocks and the real exchange rate: evidence from an outpost of textbook open-economy macroeconomics

2013 ◽  
Vol 66 (2) ◽  
pp. 491-515 ◽  
Author(s):  
D. Fielding
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Open Economy Macroeconomics ◽  
The Real ◽  
Fiscal Shocks

scholarly journals FISCAL SHOCKS IN A TWO-SECTOR OPEN ECONOMY WITH ENDOGENOUS MARKUPS

2014 ◽  
Vol 19 (8) ◽  
pp. 1839-1865 ◽  
Author(s):  
Olivier Cardi ◽  
Romain Restout
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Current Account ◽  
Open Economy ◽  
Economy Model ◽  
The Real ◽  
Nontraded Goods ◽  
Capital Intensive ◽  
Exchange Rate Depreciation ◽  
Fiscal Shocks

We use a two-sector neoclassical open economy model with traded and nontraded goods and endogenous markups to investigate the effects of temporary fiscal shocks. One central finding is that theory can be reconciled with evidence once we allow for endogenous markups and assume that the traded sector is more capital-intensive than the nontraded sector. More precisely, although both ingredients are essential to produce the real exchange rate depreciation, only the second ingredient is necessary to account for the simultaneous decline in investment and the current account, in line with the evidence.

Fiscal shocks, the real exchange rate and the trade balance: some evidence for emerging economies

2015 ◽  
Vol 15 (2) ◽  
Author(s):  
Marcelo Eduardo Alves da Silva ◽  
Diogo Baerlocher ◽  
Henrique Veras de Paiva Fonseca
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Emerging Economies ◽  
Government Spending ◽  
Trade Balance ◽  
The Real ◽  
Vector Auto Regression ◽  
Auto Regression ◽  
Structural Vector ◽  
Fiscal Shocks

AbstractThis paper implements a structural vector auto regression (SVAR) analysis to investigate the impacts and importance of fiscal shocks on the dynamics of the real exchange rate and the trade balance in three emerging economies: Brazil, Chile and Mexico. We show that the effects of an unexpected increase in government spending are not uniform across countries with higher spending leading to a depreciation of the real exchange rate in Brazil and Chile, whereas in Mexico, we observe an appreciation. The trade balance deteriorates in all three countries. We also report that an unexpected increase in taxes leads to recessionary impacts and improves the trade balance. Only in Mexico is there evidence of a real exchange rate depreciation. Finally, we show that fiscal shocks account for roughly 20% of real exchange fluctuations.

scholarly journals CAUTION OR ACTIVISM? MONETARY POLICY STRATEGIES IN AN OPEN ECONOMY

2007 ◽  
Vol 11 (4) ◽  
pp. 519-541 ◽  
Author(s):  
MARTIN ELLISON ◽  
LUCIO SARNO ◽  
JOUKO VILMUNEN
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Optimal Policy ◽  
Central Banks ◽  
Economy Model ◽  
The Real ◽  
Policy Strategies

We examine optimal policy in an open-economy model with uncertainty and learning, where monetary policy actions affect the economy through the real exchange rate channel. Our results show that the degree of caution or activism in optimal policy depends on whether central banks are in coordinated or uncoordinated equilibrium. If central banks coordinate their policy actions then activism is optimal. In contrast, if there is no coordination, caution prevails. In the latter case caution is optimal because it helps central banks to avoid exposing themselves to manipulative actions by other central banks.

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