Arnoldshain Seminar XV
“The EU and Latin America Facing Globalization”
September 4 – 6, 2017
Vienna


   
Neder, Enrique, Universidad Nacional de Córdoba, and Ricardo Descalzi, Financing Fiscal Deficits. Intertemporal approach under different exchange rate regimes.
Financing fiscal deficits implies different effects on economic variables, particularly depending on the instrument used to fund those deficits. If these economic measures do not generate impacts on welfare, they would not be of concern. But, undoubtedly, they do provoke them. And, in the special case of Argentina, the main concern is focused on the impacts on inflation, which can deteriorate the real income of families and, consequently, their welfare. Additionally, the impacts would be different considering the exchange rate regime that is being applied. Using a cash-in-advance model (which includes holdings of foreign exchange) for a small open economy with seigniorage and following McCandless (2008) and Descalzi and Neder, 2015 and 2016, we found a long run relationship between inflation, money issuing, nominal exchange rate and fiscal deficit, meaning that inflation, nominal exchange rate and the government imbalances are driven by the same trend. In this paper, we emphasize the impacts using different exchange rate regimes (fixed and flexible exchange rate).