| Description |
1 online resource (39 pages) : illustrations |
| Series |
IMF working paper, 2227-8885 ; WP/97/39 |
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IMF working paper ; WP/97/39.
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| Summary |
Economists and policymakers have long been interested in the effects of fiscal policies on the foreign exchange value of national currencies. Despite this long-standing interest, a recent study of the International Monetary Fund (1995), surveying the available evidence on this matter, notes the absence of clear predictions of the effects of fiscal policy on exchange rates. Both in that research and from anecdotal evidence, however, the view that for countries with large fiscal imbalances, like Belgium, Italy or Sweden, fiscal policy may affect exchange rates through a "risk premium channel" is strongly advocated. According to this view, a credible fiscal contraction in a country with a large stock of public debt, may produce two effects: first, it reduces the amount of government debt held by domestic and foreign investors and, second, it lowers uncertainty about future taxation and debt management policies, which render the domestic economy less vulnerable to external shocks. In a world populated by risk averse investors, both effects would produce an increase in the demand for home-currency denominated assets, thereby, easing or overturning the depreciating pressure on the domestic currency triggered by the initial fiscal contraction and arising from lower domestic interest rates |
| Bibliography |
Includes bibliographical references (pages 38-39) |
| Notes |
Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212 MiAaHDL |
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English |
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digitized 2010 HathiTrust Digital Library committed to preserve pda MiAaHDL |
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Print version record |
| Subject |
Fiscal policy -- Italy
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Foreign exchange -- Italy
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Foreign exchange rates -- Italy
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Risk -- Italy
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Fiscal policy
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Foreign exchange
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Foreign exchange rates
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Risk
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Italy
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| Form |
Electronic book
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| Author |
International Monetary Fund. Research Department.
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| ISBN |
1451893132 |
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9781451893137 |
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1281607908 |
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9781281607904 |
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1462366198 |
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9781462366194 |
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1452733139 |
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9781452733135 |
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9786613788610 |
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6613788619 |
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