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Title: An intertemporal model of the real exchange rate, stock market, and international debt dynamics: policy simulations
Authors: Gazioglu, Saziye
McCausland, W. David
Keywords: stock market
the real exchange rate
international debt
Issue Date: Jan-2005
Publisher: University of Aberdeen Business School
Series/Report no.: Economics Working Paper Series
Abstract: This paper develops an open economy intertemporal optimising model that seeks to analyse the effect of bill financed government expenditure on several key financial markets. The main results suggest that an increase in bill financed government expenditure leads to a rise in net international debt, a fall in the domestic real exchange rate and a fall in the stock market value. Furthermore, due to the presence of non-linearities in the model, reversing the deficit financing policy doesn’t restore the initial net international credit, high stock market value state. Instead, the country finds itself stuck in an international debt and low stock market value trap.
ISSN: 0143 4543
Appears in Collections:Economics research
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