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The Impact of Fixed Exchange Rates on Fiscal Discipline
Author(s) -
ElShagi Makram
Publication year - 2011
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2011.00564.x
Subject(s) - economics , exchange rate , generalized method of moments , econometrics , panel data , estimation , bond , fixed exchange rates , macroeconomics , finance , management
In this paper, it is shown that contrary to standard arguments, fiscal discipline is not substantially enhanced by a fixed exchange rate regime. This study is based on data from 116 countries collected from 1975 to 2004, and uses various estimation techniques for dynamic panel data, in particular a generalized method of moments estimation in the tradition of Arellano and Bover [ Journal of Econometrics (1995), 68 , 29] and Blundell and Bond [ Journal of Econometrics (1998), 87 , 115]. Contrary to previous papers on this topic, the present paper takes into account that the consequences of a new exchange rate regime do not necessarily fully manifest immediately.