Fiscal Discipline And Exchange Rates

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Fiscal Discipline And Exchange Rates

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Author : João Tovar Jalles
language : en
Publisher: International Monetary Fund
Release Date : 2016-11-17

Fiscal Discipline And Exchange Rates written by João Tovar Jalles and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-11-17 with Business & Economics categories.

We look at the effect of exchange rate regimes on fiscal discipline, taking into account the effect of underlying political conditions. We present a model where strong politics (defined as policymakers facing longer political horizon and higher cohesion) are associated with better fiscal performance, but fixed exchange rates may revert this result and lead to less fiscal discipline. We confirm these hypotheses through regression analysis performed on a panel sample covering 79 countries from 1975 to 2012. Our empirical results also show that the positive effect of strong politics on fiscal discipline is not enough to counter the negative impact of being at/moving to fixed exchange rates. Finally, we use the synthetic control method to illustrate how the transition from flexible to fully fixed exchange rate under the Euro impacted negatively fiscal discipline in European countries. Our results are robust to a number of important sensitivity checks, including different estimators, alternative proxies for fiscal discipline, and sub-sample analysis.

Do Fixed Exchange Rates Induce More Fiscal Discipline

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Author : Mr.Yan Sun
language : en
Publisher: International Monetary Fund
Release Date : 2003-04-01

Do Fixed Exchange Rates Induce More Fiscal Discipline written by Mr.Yan Sun and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-04-01 with Business & Economics categories.

Conventional wisdom has held that a fixed exchange rate regime induces more fiscal discipline, but Tornell and Velasco (1995, 1998) argue the opposite. Using a dynamic model with fragmented fiscal policymaking, this paper evaluates the two arguments in a single framework and shows that (1) future punishment against fiscal laxity exists under both fixed and flexible regimes; (2) fiscal authorities have a greater incentive to spend more today under fixed rates than under flexible rates; (3) in the presence of both factors above, fixed rates will induce more fiscal discipline only if the future punishment is sufficiently stronger than under flexible rates; and (4) neither fixed nor flexible rates could resolve the structural distortions caused by fragmented policymaking, and fiscal centralization needs to be undertaken to strengthen fiscal discipline.

Fiscal Discipline And Exchange Rate Regimes

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Author : Rupa Duttagupta
language : en
Publisher: International Monetary Fund
Release Date : 2006-05

Fiscal Discipline And Exchange Rate Regimes written by Rupa Duttagupta and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006-05 with Business & Economics categories.

This paper assesses the nature of fiscal discipline under alternative exchange rate regimes. First, it shows in a simple theoretical framework that fiscal agencies under a currency union with a fixed exchange rate can have the largest incentive to overspend or "free-ride" (compared to those under other exchange rate regimes) owing to their ability to spread the costs of overspending in terms of the inflation tax across both time-given the fixed exchange rate-and space-given the currency union. In contrast, such free-riding behavior does not arise under flexible regimes owing to the immediate inflationary impact of spending. Next, empirically, it shows that fiscal stances in countries with fixed pegs and currency unions regime demonstrate greater free-riding behavior than countries with more flexible regimes in 15 Caribbean countries during 1983-2004.

Fiscal Discipline Exchange Rate Regimes

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Author : Enrique Alberola
language : en
Publisher:
Release Date : 2007

Fiscal Discipline Exchange Rate Regimes written by Enrique Alberola and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.

Empirical evidence shows that fixed exchange rates do not provide more fiscal discipline than flexible regimes, despite the fact that, in principle, fixing the exchange rate imposes important restrictions on seignoriage revenues. A more detailed analysis of seignoriage allows to explain the channels whereby monetary financing is possible in the short and medium run even in a exchange rate peg. More precisely, it is argued that the traditional concept of money seignoriage is misguiding and that fiscal seignoriage, defined as the actual revenues accruing to govern from the Central Bank, is a key variable to determine fiscal discipline. The paper shows that a peculiar version of fixed regimes, the currency boards, may effectively restrain fiscal policy by ruling out fiscal seignoriage. An indirect confirmation of these hypotesis is advanced by observing the empirical link between monetary seignoriage and fiscal seignoriage, and their relation with fiscal discipline.

Fixed Versus Flexible Exchange Rates

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Author : Aaron Tornell
language : en
Publisher:
Release Date : 1995

Fixed Versus Flexible Exchange Rates written by Aaron Tornell and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1995 with Fiscal policy categories.

In recent years the conventional wisdom has held that fixed rates provide more fiscal discipline than do flexible rates. In this paper we show that this wisdom need not hold in a standard model in which fiscal policy is endogenously determined by a maximizing fiscal authority. The claim that fixed rates induce more discipline stresses that sustained adoption of lax fiscal policies must eventually lead to an exhaustion of reserves and thus to a politically costly collapse of the peg. Hence, under fixed rates bad behavior today leads to punishment tomorrow. Under flexible rates bad behavior has costs as well. The difference is in the intertemporal distribution of these costs: flexible rates allow the effects of unsound fiscal policies to manifest themselves immediately through movements in the exchange rate. Hence, bad behavior today leads to punishment today. If fiscal authorities are impatient, flexible rates - by forcing the costs to be paid up-front - provide more fiscal discipline and higher welfare for the representative private agent. The recent experience of Sub- Saharan countries supplies some preliminary evidence that matches the predictions of the model.

Fiscal Discipline Exchange Rate Regimes

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Author : Enrique Alberola Ila
language : en
Publisher:
Release Date : 2000

Fiscal Discipline Exchange Rate Regimes written by Enrique Alberola Ila and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with Currency boards categories.

Exchange Rate Policy In Developing Countries Some Analytical Issues

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Author : Bijan B. Aghevli
language : en
Publisher: World Bank Publications
Release Date : 1991-05-15

Exchange Rate Policy In Developing Countries Some Analytical Issues written by Bijan B. Aghevli and has been published by World Bank Publications this book supported file pdf, txt, epub, kindle and other format this book has been release on 1991-05-15 with Foreign exchange administration categories.

This paper addresses analytical aspects of exchange rate policy and emphasizes the relationship among exchange rate flexibility, financial discipline, and international competitiveness.

Exchange Rate Based Stabilization

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Author : Mr.A. Javier Hamann
language : en
Publisher: International Monetary Fund
Release Date : 1999-10-01

Exchange Rate Based Stabilization written by Mr.A. Javier Hamann and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999-10-01 with Business & Economics categories.

Do exchange-rate-based stabilizations generate distinctive economic dynamics? To address this question, this paper identifies stabilization episodes using criteria that differ from those in previous empirical studies of exchange-rate-based stabilizations. We find that, while some differences can be detected between exchange-rate-based stabilizations and stabilizations where the exchange rate is not the anchor, the behavior of important variables does not appear to differ—especially output growth, which is good in both cases. There is also no evidence that fiscal discipline is enhanced by adopting an exchange-rate anchor, or that there are any systematic differences in the success records of stabilizations that use the exchange rate as a nominal anchor and those that do not.

Three Essays On Tight Exchange Rate Regimes And Fiscal Discipline In Transition Economies

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Author : Dalia Grigonytė
language : en
Publisher:
Release Date : 2006

Three Essays On Tight Exchange Rate Regimes And Fiscal Discipline In Transition Economies written by Dalia Grigonytė and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with Auslandsverschuldung / Zins / Risikoprämie / Länderrisiko / Übergangswirtschaft / Schätzung / Osteuropa categories.

Proceedings Of A Conference On Currency Substitution And Currency Boards

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Author : Nissan Liviatan
language : en
Publisher: World Bank Publications
Release Date : 1993-01-01

Proceedings Of A Conference On Currency Substitution And Currency Boards written by Nissan Liviatan and has been published by World Bank Publications this book supported file pdf, txt, epub, kindle and other format this book has been release on 1993-01-01 with Business & Economics categories.

Eighteen well-known policymakers and economists discuss the rising use of currency substitution in Latin America. They examine the effects of currency boards on substitute currencies and on national stabilization programs. Latin American countries including Argentina, Bolivia, Peru, and Uruguay increasingly use dollars as a substitute for domestic currency. The experts debate whether the region should encourage or resist this trend. Topics include the effects of substitution on inflation, liquidity, and exchange rates. The discussions on Argentina, Peru, and Brazil focus on the ways in which currency boards have affected stabilization in these countries. They consider whether such boards can strengthen fiscal discipline and speed economic adjustment. A currency board issues money that is converted into a foreign reserve currency at a fixed exchange rate. This independent institution takes over the central bank's role as the sole issuer of base money. It also manages the exchange rate to keep the currency stable and convertible.