The Implications of Fiscal Conditions and Growing Internationalization for Monetary Policies and Financial Market Conditions

32 Pages Posted: 15 Feb 2006

See all articles by Peter Isard

Peter Isard

International Monetary Fund (IMF) - Research Department

Date Written: June 29, 1988

Abstract

The paper argues that the endogenous behavior of monetary authorities provides an important channel through which fiscal policy influences financial variables, and that growing internationalization has increased the sensitivity of financial conditions to fiscal policy. The core of the argument is that fiscal policy influences exchange rates, particularly to the extent that it affects the expected after-tax returns on capital located in different countries, and that the sensitivity of exchange rates to fiscal policy increases with growing internationalization. In addition, financial conditions reflect the actual and expected responses of the monetary authorities to exchange rates.

JEL Classification: 3116, 4230, 4310

Suggested Citation

Isard, Peter, The Implications of Fiscal Conditions and Growing Internationalization for Monetary Policies and Financial Market Conditions (June 29, 1988). IMF Working Paper No. 88/52, Available at SSRN: https://ssrn.com/abstract=884830

Peter Isard (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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