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- Title
The Composition of Government Spending and the Real Exchange Rate.
- Authors
Vahagn Galstyan; Lane, Philip R.
- Abstract
We show that the composition of government spending influences the long-run behavior of the real exchange rate. We develop a two-sector small open-economy model in which an increase in government consumption is associated with real appreciation, while an increase in government investment may generate real depreciation. Our empirical work confirms that government consumption and government investment have differential effects on the real exchange rate and the relative price of nontradables.
- Subjects
PUBLIC spending; CONSUMPTION (Economics); APPRECIATION (Accounting); PUBLIC investments; DEPRECIATION; PRICES; NONTRADED goods
- Publication
Journal of Money, Credit & Banking (Wiley-Blackwell), 2009, Vol 41, Issue 6, p1233
- ISSN
0022-2879
- Publication type
Article
- DOI
10.1111/j.1538-4616.2009.00254.x