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The effects of government spending on real exchange rates: Evidence from military spending panel data

Wataru Miyamoto, Thuy Lan Nguyen and Viacheslav Sheremirov

Journal of International Economics, 2019, vol. 116, issue C, 144-157

Abstract: Using panel data on military spending for 125 countries, we document new facts about the effects of changes in government purchases on the real exchange rate, consumption, and current accounts in both advanced and developing countries. While an increase in government purchases causes real exchange rates to appreciate and increases consumption significantly in developing countries, it causes real exchange rates to depreciate and decreases consumption in advanced countries. The current account decreases in both groups of countries. These findings are not consistent with standard international business cycle models. We discuss potential sources of the differences between advanced and developing countries in the responses to spending shocks.

Keywords: Military spending; Fiscal policy; Real exchange rates; Twin deficit; Risk sharing (search for similar items in EconPapers)
JEL-codes: E3 F3 F4 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: The Effects of Government Spending on Real Exchange Rates: Evidence from Military Spending Panel Data (2017) Downloads
Working Paper: The effects of government spending on real exchange rates: evidence from military spending panel data (2016) Downloads
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