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Comovements of Budget Deficits, Exchange Rates, and Outputs of Traded and Non-traded Goods

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  • Nakibullah, Ashraf

Abstract

Between 1974:1-1989:2, it appears that U.S. budget deficits and real exchange rates are correlated. This paper attempts to provide a structural explanation of these comovements in government budget deficits and exchange rates. The model expands on previous wo rks to include fiscal policy considerations in a stochastic set-up. It shows that within a simple two-country cash-in-advance constraint model, it is possible to have a positive correlation between budget deficits and exchange rates, as well as a negative correlation betwe en exchange rates and domestic traded goods production. Copyright 1993 by Oxford University Press.

Suggested Citation

  • Nakibullah, Ashraf, 1993. "Comovements of Budget Deficits, Exchange Rates, and Outputs of Traded and Non-traded Goods," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 298-313, April.
    • Handle: RePEc:oup:ecinqu:v:31:y:1993:i:2:p:298-313
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    Cited by:

    1. Kumah, F.Y., 1997. "Common stochastic trends and policy shocks in the open economy : Empirical essays in international finance and monetary policy," Other publications TiSEM db2d91ec-ae4d-40f2-b72f-7, Tilburg University, School of Economics and Management.

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