Fiscal Shocks and Real Exchange Rate Dynamics: Some Evidence for Latin America

41 Pages Posted: 26 Feb 2008

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Davide Ciferri

John Cabot University; Luiss Guido Carli University

Alessandro Girardi

National Institute of Statistics (ISTAT)

Date Written: February 2008

Abstract

This paper analyses the effects of fiscal shocks using a two-country macroeconomic model for output, labour input, government spending and relative prices which provides the orthogonality restrictions for obtaining the structural shocks. Dynamic simulation techniques are then applied, in particular to shed light on the possible effects of fiscal imbalances on the real exchange rate in the case of six Latin American countries. Using quarterly data over the period 1980-2006, we find that in a majority of cases fiscal shocks are the main driving force of real exchange rate fluctuations.

Keywords: fiscal shocks, real exchange rate, Latin American countries

JEL Classification: C32, E62, O54

Suggested Citation

Caporale, Guglielmo Maria and Ciferri, Davide and Girardi, Alessandro, Fiscal Shocks and Real Exchange Rate Dynamics: Some Evidence for Latin America (February 2008). CESifo Working Paper Series No. 2228, Available at SSRN: https://ssrn.com/abstract=1097513

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
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United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Germany

German Institute for Economic Research (DIW Berlin) ( email )

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Germany

Davide Ciferri

John Cabot University ( email )

Via della Lungara 233
Rome, 00165
Italy

Luiss Guido Carli University

Roma

Alessandro Girardi

National Institute of Statistics (ISTAT) ( email )

Via Cesare Balbo 16
00184 Rome, 0185
Italy

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