TY  - JOUR
AU  - Tornell,Aaron
AU  - Velasco,Andres
TI  - Money-Based versus Exchange Rate-Based Stabilization with Endogenous Fiscal Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5300
PY  - 1995
Y2  - October 1995
UR  - http://www.nber.org/papers/w5300
L1  - http://www.nber.org/papers/w5300.pdf
N1  - Author contact info:
Aaron Tornell
Department of Economics
UCLA
405 Hilgard Ave, Bunche Hall #8283
Los Angeles, CA  90095-1477
Tel: 310/794-1686
Fax: 310/825-9528
E-Mail: tornell@econ.ucla.edu

Andres Velasco
Columbia University
School of International and Public Affairs
420 West 118th Street
New York, NY 10027
Tel: 212/854-3899
E-Mail: avbranes@gmail.com
AB  - We present a standard intertemporal model in which fiscal policy is determined by an optimizing but non-benevolent fiscal authority. If the fiscal authority is impatient, a money-based stabilization provides more fiscal discipline and higher welfare for the representative agent than does an exchange rate-based stabilization. Data for Latin American stabilizations in the last quarter-century seem to confirm the notion that stabilizing by using money rather than the exchange rate helps induce politicians to reduce the fiscal deficit.
ER  -