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Title:Fiscal Policy, Monetary Regimes and Current Account Dynamics PDF Logo
Authors:Hohberger, Stefan
Herz, Bernhard
Issue Date:2012
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2012: Neue Wege und Herausforderungen für den Arbeitsmarkt des 21. Jahrhunderts - Session: Fiscal Policy I A11-V2
Abstract:The paper examines the stabilizing properties of fiscal policy for current account imbalances under alternative exchange rate regimes. Using a small open economy DSGE model with fiscal feedback rules, we investigate the dynamic responses of different shocks to macroeconomic variables and their implication for the current account. Our results imply that a fiscal response to the current account improves the stabilizing effect of most macroeconomic variables compared to a countercyclical response to output. The loss of national monetary policy when entering into a monetary union leads to higher variability and more persistence of the real exchange rate and the current account. Despite the stabilizing properties, fiscal policy intervention induces higher variability of output in the short-run and therefore faces a trade-off between stabilizing the external position and output
JEL:E62
F41
E61
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2012: Neue Wege und Herausforderungen für den Arbeitsmarkt des 21. Jh.

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