Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87839
Authors: 
Tornell, Aaron
Velasco, Andrés
Year of Publication: 
1994
Series/Report no.: 
Working Paper, Inter-American Development Bank, Office of the Chief Economist 303
Abstract: 
Conventional wisdom claims that fixed exchange rates provide more fiscal discipline than do flexible rates, but the recent experiences in Europe, the record of Sub-Saharan countries in the 1980s, and the history of stabilization attempts in Latin America cast empirical doubts on this wisdom. To explore this puzzle we present a standard intertemporal model with perfect capital mobility and price flexibility, in which fiscal policy is endogenously determined by a maximizing fiscal authority.
Document Type: 
Working Paper

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