{"id":8939,"date":"2025-12-15T12:50:52","date_gmt":"2025-12-15T15:50:52","guid":{"rendered":"https:\/\/aaep.org.ar\/?p=8939"},"modified":"2025-12-15T12:50:54","modified_gmt":"2025-12-15T15:50:54","slug":"fiscal-dominance-shocks-and-the-currency-distribution-of-sovereign-debt-the-case-of-a-small-open-economy","status":"publish","type":"post","link":"https:\/\/aaep.org.ar\/?p=8939","title":{"rendered":"Fiscal dominance, shocks, and the currency distribution of sovereign debt: the case of a small open economy"},"content":{"rendered":"<iframe loading=\"lazy\" class=\"wonderplugin-pdf-iframe\" src=\"https:\/\/aaep.org.ar\/wp-content\/plugins\/wonderplugin-pdf-embed\/pdfjslight\/web\/viewer.html?v=2&file=https:\/\/aaep.org.ar\/works\/works2025\/4794.pdf\" width=\"100%\" height=\"600px\" style=\"border:0;\"><\/iframe>\n\n\n\n<p><\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>This study examines the effects of incorporating fiscal dominance, based on the Fiscal Theory of the Price Level, into a New Keynesian Small Open Economy (NK-SOE) model. This framework enables a comparison between the responses of an economy characterized by fiscal dominance and those of canonical NK-SOE models when faced with monetary or external shocks. Notable differences emerge in nominal variables, such as inflation rates and nominal devaluation, as well as in household consumption and the real exchange rate. I show that introducing fiscal dominance into an otherwise standard NK-SOE model can help explain two important puzzles in the literature: the \u201cprice puzzle\u201d and the \u201cexchange rate response puzzle.\u201d Furthermore, the model is expanded to account for government debt issued in foreign currency, introducing a fiscal channel related to the currency composition of the government\u2019s debt. Additionally, the structure of taxes and government expenditures\u2014particularly fiscal revenues tied to the non-tradable sector\u2014plays a significant role in shaping the economic response when the government issues debt in foreign currency.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_coblocks_attr":"","_coblocks_dimensions":"","_coblocks_responsive_height":"","_coblocks_accordion_ie_support":"","footnotes":""},"categories":[29],"tags":[33],"class_list":["post-8939","post","type-post","status-publish","format-standard","hentry","category-anales","tag-aaep-anales-2025"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Fiscal dominance, shocks, and the currency distribution of sovereign debt: the case of a small open economy - Asociaci\u00f3n Argentina de Econom\u00eda Pol\u00edtica<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"es_ES\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Fiscal dominance, shocks, and the currency distribution of sovereign debt: the case of a small open economy - Asociaci\u00f3n Argentina de Econom\u00eda Pol\u00edtica\" \/>\n<meta property=\"og:description\" content=\"This study examines the effects of incorporating fiscal dominance, based on the Fiscal Theory of the Price Level, into a New Keynesian Small Open Economy (NK-SOE) model. 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