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Abstract

The impact of structural changes in fiscal policy on macroeconomic stability in Australia and other developed economies since the mid‐1970s is assessed. The evidence points to a destabilising influence from fiscal policy from the mid‐1970s to the mid‐1980s, with a more stabilising influence since then. Within Australia, there is some evidence that structural changes to fiscal policy may have helped to stabilise interest rates and the real exchange rate over the period since the mid‐1980s. However, this stabilising influence on the real exchange rate may have reduced the extent to which real exchange rate movements have countervailed world commodity price changes in Australian dollar terms.

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