Long-run Effects of Fiscal Policy and Domestic Public Debt on the Real Levels of Exchange Rate and GDP

Abstract

Some of the propositions deduced from open economy models in the Mundell–Fleming tradition have been subject to reformulations because of the implications that follow from changes in the level of foreign assets occurring as a consequence of the cumulative sum of current account imbalances induced by fiscal actions. Among these amendments are the ones investigated in this chapter, namely those relating to propositions about the effects of fiscal policy on the real levels of GDP and exchange rate, when perfect capital mobility prevails.