Government Spending and Tax reduction, Impact on Argentine Real Exchange Rate. Evidence from a DSGE Model

Bania Blanca

Congreso; LIV Reunión Anula de la Asociación Argentina de Economía Política; 2019

Asociación Argentina de Economía Política

In this paper, we construct, calibrate and evaluate a DSGE Model to Argentine for the purpose of quantifying the differential impact generated by increases in public Spending (be this originated in public consumption or public investment) and tax reduction on the Argentine Real Exchange Rate. It is concluded that the fiscal deficit originated in tax reduction can improve the Real Exchange Rate (RER) while the one generated by any increase in expenditure deteriorates it. Furthermore, the deterioration in the Real Exchange Rate is greater when public expenditure is applied to public consumption than when it is used for public investment.