Fiscal Policy and the Predictability of Exchange Rate Collapse
Electronic Access:
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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.
Series:
Working Paper No. 1997/133
Subject:
Consumption Conventional peg Domestic credit Exchange rates International reserves
English
Publication Date:
October 1, 1997
ISBN/ISSN:
9781451855456/1018-5941
Stock No:
WPIEA1331997
Pages:
18
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