Back Matter
Author: Ms. Yan M Sun

REFERENCES

  • Aghion, P., and P. Bolton, 1990, “Government Debt and the Risk of Default: A Political Economic Model of the Strategic Role of Debt,” in Public Debt Management: Theory and Practice, ed. by R. Dornbusch and M. Draghi (Cambridge, England: Cambridge University Press).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Alesina, A., and R. Perotti, 1995, “The Political Economy of Budget Deficits,” IMF Staff Papers, Vol. 42, pp. 1-31.

  • Alesina, A., and G. Tabellini, 1990, “A Positive Theory Of Fiscal Deficits and Government Debt,” The Review of Economic Studies, Vol. 57, pp. 403-414.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Juhn, G., and P. Mauro, 2002, “Long-run Determinants of Exchange Rate Regimes: A Simple Sensitivity Analysis,” IMF Working Paper 02/104 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Milesi-Ferretti, G.M., 1994, “How Cynical Can an Incumbent Be? Strategic Policy in a Model of Government Spending,” Journal of Public Economics, Vol. 55, pp. 121-140.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Milesi-Ferretti, G.M., 1995a, “The Disadvantage of Tying Their Hands: On the Political Economy of Policy Commitments,” The Economic Journal, Vol. 105, pp. 1381-1402.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Milesi-Ferretti, G.M., 1995b, “Do Good or Do Well? Public Debt Management in a Two-Party Economy,” Economics and Politics, Vol. 7, pp. 121-135.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Persson, T., and L.E.O. Svensson (1989), “Why a Stubborn Conservative Would Run a Deficit: Policy with Time-inconsistent Preferences,” The Quarterly Journal of Economics, Vol. 104, pp. 325-345.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Tanzi, V., (1994), “The Political Economy of Fiscal Deficit Reduction,” in Public Sector Deficits and Macroeconomic Performance, ed. by W. Easterly, C.A. Rodriguez, K. Schmidt-Hebbel (New York: Oxford University Press).

    • Search Google Scholar
    • Export Citation
  • Tornell, A., and A. Velasco, 1995, “Fiscal Discipline and the Choice of Exchange Rate Regime,” European Economic Review, Vol. 39, pp. 759-770.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Tornell, A., and A. Velasco, 1998, “Fiscal Discipline and the Choice of a Nominal Anchor in Stabilization,” Journal of International Economics, Vol. 46, pp. 1-30.

    • Crossref
    • Search Google Scholar
    • Export Citation
1

I am indebted to Eduard Brau, Jianhai Lin, Gian Maria Milesi-Ferretti, and Andres Velasco for their comments on earlier drafts. All errors are mine.

2

The usual trade-off between inflation and spending applies as public spending must be financed through seignior-age, inflation tax, or borrowing.

3

In this paper, a fixed exchange rate regime means a pegged regime with zero inflation. The terms “pegged” and “fixed” are used interchangably throughout the paper.

4

See Alesina and Tabellini (1990), Persson and Svensson(1989) for discussions on using debts to create constraints for future governments. See Aghion and Bolton (1990), Milesi-Ferretti (1995) for discussions on using debts to affect electoral results.

5

Government 1 means the government in period 1 and it can be either party. The same holds for Government 2.

6

For more discussions on this assumption, see Tornell-Velasco (1998).

7

Whether Government 1 is the Left or the Right is given exogenously and is not determined through an election.

8

In Case 1, the two forces work in the same direction, which makes the liberal successor always spend more than what the conservative Government 1 desires.

9

Since m1i*<(ra)ϵ,I have u(gRi*)=1αR[a(1ϵ1)+(1+r)(m1i*)1ϵ]>1αR[a(1ϵ1)+a(1+r)r]>1aαM(1ϵ1)>1aαL(1ϵ1)=u(g¯L). Therefore, gRi*(i=f,p) is always less than g¯L.

A Political-Economic Model of the Choice of Exchange Rate Regime
Author: Ms. Yan M Sun