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Fiscal Policy and the Predictability of Exchange Rate Collapse

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 th...

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Bibliographic Details
Main Author: Daniel, Betty
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1997
Series:IMF Working Papers
Subjects:
Foreign Exchange Reserves
Credit
Wealth
International Monetary Arrangements And Institutions
Monetary Economics
Currency; Foreign Exchange
Saving
Monetary Policy, Central Banking, And The Supply Of Money And Credit: General
Open Economy Macroeconomics
Domestic Credit
Foreign Exchange
International Policy Coordination And Transmission
Consumption; Economics
Conventional Peg
International Reserves
Banks And Banking
Consumption
Macroeconomics
Banking
Macroeconomics: Consumption
Exchange Rates
Monetary Policy
Money And Monetary Policy
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary: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
Physical Description:18 pages
ISBN:9781451855456

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