000			02470cam a22003257 4500
001			w5108
003			NBER
005			20211020114252.0
006			m o d
007			cr cnu||||||||
008			210910s1995 mau fo 000 0 eng d
100	1		_aTornell, Aaron.
245	1	0	_aFixed versus Flexible Exchange Rates: _bWhich Provides More Fiscal Discipline? / _cAaron Tornell, Andres Velasco.
260			_aCambridge, Mass. _bNational Bureau of Economic Research _c1995.
300			_a1 online resource: _billustrations (black and white);
490	1		_aNBER working paper series _vno. w5108
500			_aMay 1995.
520	3		_aIn recent years the conventional wisdom has held that fixed rates provide more fiscal discipline than do flexible rates. In this paper we show that this wisdom need not hold in a standard model in which fiscal policy is endogenously determined by a maximizing fiscal authority. The claim that fixed rates induce more discipline stresses that sustained adoption of lax fiscal policies must eventually lead to an exhaustion of reserves and thus to a politically costly collapse of the peg. Hence, under fixed rates bad behavior today leads to punishment tomorrow. Under flexible rates bad behavior has costs as well. The difference is in the intertemporal distribution of these costs: flexible rates allow the effects of unsound fiscal policies to manifest themselves immediately through movements in the exchange rate. Hence, bad behavior today leads to punishment today. If fiscal authorities are impatient, flexible rates - by forcing the costs to be paid up-front - provide more fiscal discipline and higher welfare for the representative private agent. The recent experience of Sub- Saharan countries supplies some preliminary evidence that matches the predictions of the model.
530			_aHardcopy version available to institutional subscribers
538			_aSystem requirements: Adobe [Acrobat] Reader required for PDF files.
538			_aMode of access: World Wide Web.
588	0		_aPrint version record
690		7	_aF31 - Foreign Exchange _2Journal of Economic Literature class.
700	1		_aVelasco, Andres.
710	2		_aNational Bureau of Economic Research.
830		0	_aWorking Paper Series (National Bureau of Economic Research) _vno. w5108.
856	4	0	_uhttps://www.nber.org/papers/w5108
856			_yAcceso en línea al DOI _uhttp://dx.doi.org/10.3386/w5108
942			_2ddc _cW-PAPER
999			_c343255 _d301817