The effects of government spending on consumption and the real exchange rate: a comparison between developed and developing countries

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Issue Date
2023-02-13
Embargo End Date
Authors
Li, Yu
Zhu, Xiaoyang
Advisor
Citation

Li, Y. and Zhu, X. (2023), "The effects of government spending on consumption and the real exchange rate: a comparison between developed and developing countries", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-11-2020-1395

Abstract

Purpose – The degree of development and the way to identify a fiscal shock matter in evaluating the effects of the fiscal policy. This paper contributes to the debate on the effects of a fiscal expansion on private consumption and the real effective exchange rate. Design/methodology/approach – This paper uses a sign-restriction method to identify a fiscal shock in the panel structural VAR analysis in the context of both developed and developing countries. Findings – The authors’ find that (1) private consumption increases in response to a positive government spending shock in both groups, yet such consumption effect is greater in developing than industrial countries; (2) the response of real effective exchange rate to the government spending shock varies across groups: it depreciates in developed countries and appreciates in developing countries; (3) trade balance improves in both groups. Originality/value – This study sheds light on the differential

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