The Ricardian equivalence proposition: evidence from foreign exchange markets

Article Abstract:

That big government deficits act to increase interest rates and crowd out other investment is opposed by the Ricardian equivalence proposition, a position for which support has been assumed by the lack of strong correlation between deficits and interest rates. Using the efficient market hypothesis, this study finds that capital mobility rather than the absence of the crowding out effect is a factor in the lack of correlation between budget deficits and short-term interest rates. The effects of deficit and spending announcements is examined in regard to exchange and interest rates and forward premia.

Research, Interest rates, Open market operations, Budget deficits

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Stochastic trends and economic fluctuations in a large open economy

Article Abstract:

The most significant effects of external shocks on the domestic economy materialize through the real exchange rates, leading to fluctuations even in large countries. On the one hand, lasting shocks in real exchange rates have influenced the flow of business cycles for the last thirty years. As predetermined by macroeconomic models of open economies, the impact of shocks in the exchange rates is manifested through the net exports. On the other hand, modifications in foreign output, while influential in determining net exports, do not have significant effects on local real variables.

Exchange Rates, Models, Macroeconomics, Stochastic processes

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