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Government spending and the exchange rate

Faik Koray, Pingfai Chan

Open publisher page 19 citations

Abstract

This paper investigates the effects of govenment spending on real and nominal exchange rates within the context of an open economy equilibrium rational expectations model. The model predicts that both real and nominal exchange rates appreciate in response to anticipated and unanticipated increases in government spending. Empirical evidence from Germany for the period 1975:2–1989:4 provides some weak support for the predictions of the model.

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What this paper is about

This paper investigates the effects of govenment spending on real and nominal exchange rates within the context of an open economy equilibrium rational expectations model. The model predicts that both real and nominal exchange rates appreciate in response to anticipated and unanticipated increases in government spending. Empirical evidence from Germany for the period 1975:2–1989:4 provides some weak support for the predictions of the model.

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OpenAlex reports 19 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

This paper investigates the effects of govenment spending on real and nominal exchange rates within the context of an open economy equilibrium rational expectations model. The model predicts that both real and nominal exchange rates appreciate in response to anticipated and unanticipated increases in government spending. Empirical evidence from Germany for the period 1975:2–1989:4 provides some weak support for the predictions of the model.

Key concepts: Economics, Government spending, Exchange rate, Context (archaeology), Open economy, Government (linguistics), Macroeconomics, Rational expectations

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