Fiscal Policy and the Exchange Rate-Current Account Nexus

Author/Editor:

Jun I Kim

Publication Date:

February 1, 2007

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

By using a simple intertemporal model of the current account, I show that the exchange rate elasticity of the trade balance would ceteris paribus be smaller for countries with higher government spending ratios (relative to GDP) and with more limited scope for private consumption smoothing. This finding may have important implications for the design of adjustment programs and for resolving current global imbalances. It could also help explain and reconcile mixed empirical findings on trade elasticities.

Series:

Working Paper No. 07/27

Subject:

English

Publication Date:

February 1, 2007

ISBN/ISSN:

9781451865912/1018-5941

Stock No:

WPIEA2007027

Format:

Paper

Pages:

13

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