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Impacts of flexible exchange rates and government debt on output

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  • Yu Hsing

Abstract

Based on the IS-LM model and applying the GARCH(m, n) process, the author finds that the depreciation of the Thai baht, more government taxes, or higher domestic debt are expected to reduce real GDP and that an increase in government spending, real quantity of money, world output or foreign debt are expected to raise real output. Therefore, the positive benefits of baht depreciation are outweighed by negative impacts. The negative impact of domestic debt suggests that the government should pursue a responsible fiscal policy in the long run. The VAR model is applied to estimate impulse response functions to trace the shocks of these variables on real GDP.

Suggested Citation

  • Yu Hsing, 2004. "Impacts of flexible exchange rates and government debt on output," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 9(1), pages 1-9.
    • Handle: RePEc:taf:rjapxx:v:9:y:2004:i:1:p:1-9
    DOI: 10.1080/13547860310001628267
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    References listed on IDEAS

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    1. Morris Goldstein & John Hawkins, 1998. "The Origin of the Asian Financial Turmoil," RBA Research Discussion Papers rdp9805, Reserve Bank of Australia.
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