Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5067587 | European Economic Review | 2006 | 22 Pages |
Abstract
This paper analyzes links between the fiscal theory of the price level (FTPL) and the first generation models after Krugman (Journal of Money Credit and Banking 11 (1979), 311-325), exploring the idea that a synthesis between the two can become a new framework to analyze the fiscal dimension of currency crises. Working in a simple synthetic framework, we show how external nominal shocks can cause a fiscal imbalance and undermine currency stability, resolve two well-known paradoxes of the first generation model, discuss the role of seigniorage revenues, and illustrate how fiscal and interest rate policies interact to determine the magnitude and the timing of speculative attacks and devaluations.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Giancarlo Corsetti, Bartosz MaÄkowiak,