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Fiscal Shocks and the Exchange Rate in a Generalized Redux Model

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  • Giorgio Di Giorgio
  • Salvatore Nisticò
  • Guido Traficante

Abstract

type="main" xml:lang="en"> This paper studies how the interaction between the monetary policy regime and the degree of home bias in public consumption affects the exchange-rate response to fiscal shocks in a generalized version of the Redux model of Obstfeld and Rogoff ( ). We show that the joint presence of home bias in public consumption and endogenous monetary policy overturns the result of the Redux model implying an exchange-rate appreciation in response to an expansionary fiscal shock.

Suggested Citation

  • Giorgio Di Giorgio & Salvatore Nisticò & Guido Traficante, 2015. "Fiscal Shocks and the Exchange Rate in a Generalized Redux Model," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 44(3), pages 419-436, November.
    • Handle: RePEc:bla:ecnote:v:44:y:2015:i:3:p:419-436
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    Cited by:

    1. Di Giorgio, Giorgio & Nisticò, Salvatore & Traficante, Guido, 2018. "Government spending and the exchange rate," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 55-73.
    2. Di Giorgio, Giorgio & Traficante, Guido, 2018. "Fiscal shocks and helicopter money in open economy," Economic Modelling, Elsevier, vol. 74(C), pages 77-87.

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