The Composition of Government Spending and the Real Exchange Rate

Vahagn Galstyan and Philip R. Lane
Authors registered in the RePEc Author Service: Philip Lane () and Vahagn Galstyan

The Institute for International Integration Studies Discussion Paper Series from IIIS

Abstract: We show that the composition of government spending influences the long-run behaviour 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.

Date: 2008-07-07
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Related works:
Working Paper: The Composition of Government Spending and the Real Exchange Rate (2008)
Journal Article: The Composition of Government Spending and the Real Exchange Rate (2009)
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