Fiscal stabilization and exchange rate instability. A theoretical approach and some policy conclusions using Mexican data

Andrew Feltenstein, Stephen Morris

Research output: Contribution to journalArticle

8 Scopus citations

Abstract

We construct a perfect foresight intertemporal general equilibrium model designed to analyze the impact of reductions in piblic spending. The model incorporates public infrastructure that enters private productions and a reserve-based government exchange rate policy. The model is estimated for Mexico and a three-year benchmark equilibrium is computed. Counterfactual simulations are carried out, with one of the conclusions being that a reduction in government spending can be inflationary. The results are sensitive to the elasticity of private output with respect to government infrastructure.

Original languageEnglish (US)
Pages (from-to)329-356
Number of pages28
JournalJournal of Public Economics
Volume42
Issue number3
DOIs
StatePublished - Aug 1990

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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