Foreign debt, distribution, inflation and growth in a SFC model

PABLO GABRIEL BORTZ

European Journal of Economics and Economic Policies: Intervention

Edward Elgar

Año: 2014 vol. 11 p. 269 - 299

We present an open economy growth model, using Stock-Flow Consistent (SFC) methodology. Our contribution is to add the possibility of one country issuing debt denominated in another country's currency, as well as allowing its firms to borrow from foreign banks. We investigate the effects and interactions that these features have on trade and financial flows, income distribution, foreign debt, and fiscal and monetary policy. Our results point towards the dismissal of the ?twin deficit? view, and support an active management of the exchange rate, in light of contradictory effects of fixed and flexible exchange rate regimes, according to the circumstances.