Aloy, MarcelMoreno-Dodson, BlancaNancy, Gilles2012-05-302012-05-302008-04https://hdl.handle.net/10986/6704The paper presents a dynamic model for small to medium open economies operating under a fixed exchange rate regime. The model provides a partial explanation of the channels through which fiscal and monetary policy affects the real exchange rate. An empirical investigation is conducted for the case of Argentina during the currency board period of 1991-2001. Empirical estimates show that fiscal policy may indeed be an efficient instrument for promoting macroeconomic stability insofar as it encourages convergence toward long-run equilibrium and alters the long-term balance between exports and consumption, both private and public. The simulation applied to Argentina shows that if the share of public spending in the economy is higher than the share of imports, an increase in the tax rate will stimulate capital stock slightly, at least in the short term, and depreciate the real effective exchange rate. In the long run, the fiscal policy affects the value of the real exchange rate and consequently external competitiveness.CC BY 3.0 IGOABSENCE OF STERILIZATIONACTUAL VALUESADJUSTMENT MECHANISMAGGREGATE CONSUMPTIONBALANCE OF PAYMENTSBUDGET DEFICITBUSINESS CYCLEBUSINESS CYCLESCAPITAL ACCUMULATIONCAPITAL INFLOWCAPITAL INFLOWSCAPITAL MOVEMENTSCAPITAL STOCKCASH BALANCECASH BALANCESCENTRAL BANKCONSUMER PRICE INDEXCONSUMERSCONSUMPTION PRICE INDEXCONSUMPTION SPENDINGCONTROL VARIABLECORRELATION COEFFICIENTSCREDIBILITYCURRENCYCURRENCY BOARDCURRENCY BOARD ARRANGEMENTCURRENCY BOARDSCURRENCY CRISESCURRENT ACCOUNTCURRENT ACCOUNT DEFICITCURRENT ACCOUNT DEFICITSCURRENT ACCOUNTSDEBT SERVICEDEPENDENT VARIABLEDEPRECIATIONDEPRECIATION RATEDERIVATIVEDERIVATIVESDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDISCOUNT RATEDOMESTIC BANKINGDOMESTIC BANKING SYSTEMDOMESTIC CONSUMPTIONDOMESTIC CREDITDOMESTIC GOODDOMESTIC GOODSDOMESTIC INFLATIONDOMESTIC MONEY SUPPLYDOMESTIC PRICESDYNAMIC ANALYSISECONOMETRIC ESTIMATESECONOMIC POLICYELASTICITYELASTICITY OF EXPORTSEMERGING ECONOMIESEQUATIONSEQUILIBRIUM LEVELEXCHANGE RATE CRISESEXCHANGE RATE FLUCTUATIONSEXCHANGE RATE REGIMESEXCHANGE RATE VOLATILITYEXOGENOUS INCOMEEXPENDITUREEXTERNAL COMPETITIVENESSEXTERNAL DEBTEXTERNAL INDEBTEDNESSEXTERNAL SHOCKEXTERNAL SHOCKSFINANCIAL CRISISFISCAL BALANCEFISCAL DEFICITFISCAL DISCIPLINEFISCAL POLICIESFISCAL POLICYFISCAL THEORYFIXED EXCHANGE RATEFIXED EXCHANGE RATE REGIMEFIXED EXCHANGE RATESFLOATING REGIMESFOREIGN ASSETSFOREIGN CURRENCYFOREIGN DEBTFOREIGN EXCHANGEFOREIGN EXCHANGE RESERVESFOREIGN INFLATIONFOREIGN INTERESTFOREIGN INTEREST RATEFOREIGN INTEREST RATESFOREIGN LOANSFOREIGN RATEFOREIGN REAL INTEREST RATEFOREIGN REAL INTEREST RATESGDPGOLDGOLD STANDARDGOVERNMENT BUDGETGOVERNMENT CONSUMPTIONGOVERNMENT DEBTGOVERNMENT REVENUESGOVERNMENT SPENDINGGROWTH RATEGROWTH RATESHARD PEGHOME COUNTRYIMBALANCESIMPACT ON PRICEIMPERFECT CAPITAL MOBILITYIMPORTSINDEBTEDNESSINFLATIONINFLATION ANCHORSINFLATION RATEINFLATION RATESINSTRUMENTINTEREST RATE PARITYINTEREST RATESINTERMEDIATE REGIMESINTERNATIONAL BANKINTERNATIONAL ECONOMICSINTERNATIONAL INFLATIONINTERNATIONAL MONETARY FUNDINTERNATIONAL PRICESLIBERALIZATIONLIQUIDITYLOCAL CURRENCYLONG RUN EQUILIBRIUMLONG-RUN EQUILIBRIUMLONG-TERM CAPITALMACROECONOMIC ADJUSTMENTMACROECONOMIC EVENTSMACROECONOMIC FLUCTUATIONSMACROECONOMIC MODELMACROECONOMIC STABILITYMARGINAL PRODUCTIVITYMARKET EQUILIBRIUMMONETARY AUTHORITIESMONETARY AUTHORITYMONETARY DISCIPLINEMONETARY MODELMONETARY POLICIESMONETARY POLICYMONETARY REGIMESMONETARY UNIONSMONEY DEMANDMONEY GROWTHMONEY MARKETMONEY STOCKMONEY SUPPLYMULTIPLIERSNOMINAL ANCHORSNOMINAL EXCHANGE RATEOPEN ECONOMIESOPEN ECONOMYOPTIMIZATIONOUTPUTOUTPUT RATIOPERMANENT SHOCKPOLITICAL ECONOMYPOPULATION GROWTHPOVERTY REDUCTIONPRICE STABILITYPRIVATE CAPITALPRIVATE CONSUMPTIONPRODUCTION FUNCTIONPUBLIC ASSETSPUBLIC CONSUMPTIONPUBLIC DEBTPUBLIC DEFICITPUBLIC ECONOMICSPUBLIC EXPENDITURESPUBLIC SECTORPUBLIC SPENDINGPURCHASING POWERPURCHASING POWER PARITYRATE OF GROWTHRATE OF INFLATIONREAL CONSUMPTIONREAL EFFECTIVE EXCHANGE RATEREAL EXCHANGE RATEREAL INTERESTREAL INTEREST RATEREAL TERMSRECESSIONRELATIVE PRICERELATIVE PRICESRISK PREMIUMSAVINGSSEIGNORAGESHORT-TERM CAPITALSLOWDOWNSTEADY STATESTOCK CHANGESTOCK RETURNSSUPPLY CONSTRAINTSURPLUSTAXTAX INCREASETAX RATETAX RATESTIME HORIZONTRADINGUTILITY FUNCTIONWEALTHWITHDRAWALWORLD DEMANDWorld Bank10.1596/1813-9450-4607