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A Model of Balance‐of‐Payments Crises due to External Shocks: Monetary vs. Fiscal Approaches
Author(s) -
Kitano Shigeto
Publication year - 2004
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.2004.00188.x
Subject(s) - shock (circulatory) , economics , balance of payments , monetary economics , constraint (computer aided design) , balance (ability) , fiscal policy , government (linguistics) , monetary policy , payment , macroeconomics , international economics , finance , medicine , mechanical engineering , linguistics , philosophy , physical medicine and rehabilitation , engineering
This paper develops a model for balance‐of‐payments (BOP) crises triggered by an external shock. Whether an external shock induces a BOP crisis depends crucially on the sequence of policy actions taken by the government's monetary and fiscal authorities. If the fiscal authority moves first and imposes an exogenous constraint on the monetary authority, an external shock can lead to a BOP crisis. However, if the monetary authority moves first and imposes an exogenous constraint on the fiscal authority, the same shock does not cause a BOP crisis.