Government spending and the real exchange rate
Year: 1987
Type: article
Abstract: I study the effect of government spending on the real exchange rate in an open economy version of the Sidrauski model with a time-varying rate of time preference that introduces complementarity between consumption at different points in time. I show that a balanced budget fiscal expansion causes a real depreciation and a current account surplus if the expansion falls on traded goods. If the increase falls instead on nontraded goods, both the ‘stylized’ results of a real appreciation and a current account deficit and the ‘perverse’ result of an appreciation and a surplus can occur.
Author: Alessandro Penati
Institution: University of Pennsylvania
Language: English
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $4,300
OpenAlex ID: W2000307501