Exchange rate volatility, fiscal policy, and conventions: an empirical assessment through dynamic panel data
Abstract
This paper provides an empirical assessment of the impact of fiscal variables (tax revenue, public expenditure, and public debt) on exchange rate volatility. To this end, a panel of 53 countries for the period from 2004 to 2023 was utilized, employing the GMM-System estimation method to control for endogeneity. The results indicate that fiscal austerity measures, through either increases in tax revenue or reductions in public spending, lead to a reduction in exchange rate volatility. However, these results should not be interpreted as recommendations for policymakers to reduce the volatility of domestic currency. Instead, they serve as evidence of agents’ risk perception based on a shared belief at a given time.
Fields of Study & Subjects
Monetary Policy and Economic Impact
Global Financial Crisis and Policies
Economic Policies and Impacts
Publication details
- Journal / source
- Journal of Post Keynesian Economics
- Volume
- 49
- Issue
- 3
- Pages
- 532–559
- Publication date
- 6 January 2026
- Language
- EN