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Fiscal Constraints of a Fixed Exchange Rate Regime
Author:
International Monetary Fund
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Series:
IMF Working Papers
Volume/Issue:
Volume 1989: Issue 107
Language:
English
Publication Date:
01 Jan 1989
DOI:
https://doi.org/10.5089/9781451946680.001
ISBN:
9781451946680
ISSN:
1018-5941
Pages:
26
Keywords:
WP; government; country; hard currency; hard currency regime; financing constraint; hard currency policy; exchange rate regime; inflation rate; vis-à-vis DM; exchange rate stability; Conventional peg; Currencies; Exchange rate arrangements; Exchange rates; Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The paper considers whether the implementation of a fixed exchange rate regime requires or implies binding constraints on fiscal policy. The main conclusions are that, from a country perspective, the effective constraint is on the degree of monetary financing, which bears an uncertain relationship to the size of the budget deficit; that, from a systemic perspective, the financial stability of the currency area can be ensured by making the monetary and fiscal authorities independent of one another; and that the case for coordination of fiscal policies—whatever its merits—is not enhanced by the creation of a fixed exchange rate regime.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund