ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Fiscal Deficits, Expectations and Exchange Rates

Fiscal deficits that are expected to be reversed at some unknown date in the future cause a real appreciation of the exchange rate along with an expectation of depreciation, a trade deficit, and high domestic interest rates. The expectation of depreciation will have a positive impact on investment provided a time-frame within which the deficit can be credibly reduced is charted and acted on.

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