Hyun Ho Lee (Leo Lee)
ENECO480 International Finance
June 6th, 2013
Prof. Manuel Agosin
What are the relationship between fiscal policy and the exchange rate in open
economies?
Since Mr. Abe Shinzo was appointed as a Prime Minister of Japan, the world started
to focus on the fiscal policy of Japan. The minister Shinzo announced that the government
would put indefinite amount of money in the market to stimulate consumption which would
eventually lead to raise inflation rate up to 2%. Correspondent to the minister, Bank of Japan
(BOJ) started to buy assets. I am sure that the aggressive fiscal action would increase the debt
of Japan, and the problem is Japanese debt is approximately 300% of its GDP already.
Regarding its debt, the United States Department of Treasury is facing the similar problem.
