Economics at your fingertips  

Government spending and the exchange rate

Giorgio Di Giorgio (), Salvatore Nisticò () and Guido Traficante ()

International Review of Economics & Finance, 2018, vol. 54, issue C, 55-73

Abstract: This paper studies the real exchange rate response to a government-spending shock in a two-country model with productive government purchases and non-Ricardian households. In this economy, the real exchange rate depreciates following an increase in domestic public spending, consistently with most empirical evidence. Importantly, and consistently with empirical evidence, the depreciation occurs both on impact and in the transition. The transmission mechanism works through an increase in domestic private-sector productivity, spurred by government purchases, which reduces real marginal costs at home allowing for accommodating monetary policy response.

Keywords: Exchange rate; Fiscal shocks; Endogenous monetary; Fiscal policy (search for similar items in EconPapers)
JEL-codes: E52 E62 F41 F42 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Government spending and the exchange rate (2015) Downloads
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:

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-02-10
Handle: RePEc:eee:reveco:v:54:y:2018:i:c:p:55-73