EconPapers    
Economics at your fingertips  
 

Government spending shocks and the real exchange rate in China: Evidence from a sign-restricted VAR model

Yong Chen and Dingming Liu

Economic Modelling, 2018, vol. 68, issue C, 543-554

Abstract: This study analyzes the impact of government spending shocks on the real exchange rate in China over the period 1995Q1 - 2015Q2 using a structural VAR framework. To achieve identification, we derive robust restrictions on the sign of several impulse responses from an open economy general equilibrium model calibrated to China's economy. The results show that expansionary government consumption shocks and government investment shocks both lead to real exchange rate appreciation, which is different from the empirical evidence for some developed countries but is in line with the prediction of the conventional Mundell-Fleming model. We also find that both positive government consumption and investment shocks lead to a fall in the trade balance jointly with higher government deficits, which generate twin deficits.

Keywords: Government spending shocks; Real exchange rate; VAR; Sign restriction (search for similar items in EconPapers)
JEL-codes: E62 F31 F41 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999317304947
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:68:y:2018:i:c:p:543-554

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Series data maintained by Dana Niculescu ().

 
Page updated 2018-02-24
Handle: RePEc:eee:ecmode:v:68:y:2018:i:c:p:543-554