This paper documents and explains the positive comovement between external and budget deficits for several developing countries. First, the covariance estimated from post-1960 time-series data is numerically positive for each of the 24 countries and statistically significant for almost all...

A robust prediction across a wide range of open-economy macroeconomic models is that an unanticipated increase in public spending in a given country appreciates it currency in real terms. This result, however, contradicts the findings of a number of recent empirical studies, which instead...

In this paper we study jointly optimal ¯scal and monetary policies in a small open economy framework with capital and sticky prices. We consider the case of distor- tionary taxes on labor and capital, and no public debt. As in a closed economy set{up, in the steady state, the optimal in°ation...