Real Exchange Rate Effects of Fiscal Policy

Jeffrey Sachs, Charles Wyplosz

NBER Working Paper No. 1255
Issued in 1984
NBER Program(s):   ITI   IFM

This paper develops a framework for analyzing the effects of fiscal policy on the real exchange rate. The short-run impact of various types of fiscal measures are considered as well as the dynamics of adjustment to long-run steady states. The analysis and related simulations suggest that the effect of fiscal policy changes on the real exchange rate can vary widely and will depend closely on a number of structural features, including the degree of asset substitutability,the composition of government spending, and the initial size of the public debt and net external position.

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