Fiscal Policy and the Exchange Rate-Current Account Nexus

February 1, 2007

Preview Citation

Format: Chicago

Jun I Kim. Fiscal Policy and the Exchange Rate-Current Account Nexus, (USA: International Monetary Fund, 2007) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

By using a simple intertemporal model of the current account, I show that the exchange rate elasticity of the trade balance would ceteris paribus be smaller for countries with higher government spending ratios (relative to GDP) and with more limited scope for private consumption smoothing. This finding may have important implications for the design of adjustment programs and for resolving current global imbalances. It could also help explain and reconcile mixed empirical findings on trade elasticities.

Subject: Exchange rates, Expenditure, Fiscal policy, Real exchange rates, Trade balance

Keywords: Exchange rate, WP

Publication Details

Pages:

13
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/027
Stock No:

WPIEA2007027
ISBN:

9781451865912
ISSN:

1018-5941

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