I’m going over the schweser’s secret sauce and they state: for expansionary … fiscal policy … the currency will appreciate monetary policy …the currency will depreciate can someone explain the fiscal part?
To go into debt, the government has to sell treasury securities. Doing so causes prices on those securities to fall and yields to increase, which increases interest rates (the “crowding out” effect). That leads to currency appreciation.
…as foreign capital comes in to finance the growing debt and take advantage of high real interest rates.
joey, yes. it has to do with real interest rates. thanks guys.
I agree. This is how I remember this. Expansionary fiscal policy, crowding out effect, interest goes up, so currency appreciates, financial account surplus, current accound deficit. Monetary policy, interest rate goes down, …