The Effects of Government Spending on Real Exchange Rates: Evidence from Military Spending Panel Data

44 Pages Posted: 23 Nov 2016

See all articles by Wataru Miyamoto

Wataru Miyamoto

Bank of Canada

Thuy Nguyen

Santa Clara University - Department of Economics

Viacheslav Sheremirov

Federal Reserve Banks - Federal Reserve Bank of Boston

Multiple version iconThere are 2 versions of this paper

Date Written: 2016-10-01

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 deteriorates in both groups of countries. These findings are not consistent with standard international business-cycle models. We investigate whether the difference between advanced economies and developing countries in the responses of real exchange rates to spending shocks can be explained by alternative hypotheses.

Keywords: military spending, fiscal policy, real exchange rates, twin deficit, risk sharing

JEL Classification: E3, F3, F4

Suggested Citation

Miyamoto, Wataru and Nguyen, Thuy and Sheremirov, Viacheslav, The Effects of Government Spending on Real Exchange Rates: Evidence from Military Spending Panel Data (2016-10-01). FRB of Boston Working Paper No. 16-14, Available at SSRN: https://ssrn.com/abstract=2874708

Wataru Miyamoto (Contact Author)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

HOME PAGE: http://https://sites.google.com/site/wataruecon/

Thuy Nguyen

Santa Clara University - Department of Economics ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

Viacheslav Sheremirov

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
53
Abstract Views
468
rank
237,930
PlumX Metrics