Publisher's Synopsis
This study of the role of public sector deficits and debt in a world dominated by highly integrated financial markets highlights the growing instability of foreign exchange and other financial markets. Recent theoretical innovations in international economics are used with new empirical evidence to analyze the effects of budget deficits and government debt.;The author adoptes two approaches. The first concludes that extensive deficit financing, as used by the industrial world in the 1970s and 1980s, has contributed greatly to the rise in world real interest rates that has occurred over that period. The second approach concludes that the huge budget deficits of the United States in the 1980s can explain the initial large appreciation of the US dollar and its subsequent depreciation.;Finally, the empirical results are applied to some outstanding policy issues, such as exchange rate targeting.
