Government Purchases and the Real Exchange Rate Export

@article{citeulike:5801556, abstract = {Recent empirical research documents that an exogenous rise in government purchases in a given country triggers a persistent depreciation of its real exchange rate - which raises an important puzzle, as standard macro models predict an appreciation of the real exchange rate. This paper presents a simple model with limited international risk sharing that can account for the empirical real exchange rate response. When faced with a country-specific rise in government purchases, local households experience a negative wealth effect; they thus work harder, and domestic output increases. Under balanced trade (financial autarky) this supply-side effect is so strong that the terms of trade worsen, and the real exchange rate depreciates. In a bonds-only economy, an increase in government purchases triggers a real exchange rate depreciation, if the rise in government purchases is sufficiently persistent and/or labor supply is highly elastic.}, author = {Kollmann, Robert}, citeulike-article-id = {5801556}, citeulike-linkout-0 = {http://ssrn.com/abstract=1469925}, citeulike-linkout-1 = {http://papers.ssrn.com/sol3/Delivery.cfm/.pdf?abstractid=1469925&mirid=1}, day = {08}, journal = {Social Science Research Network Working Paper Series}, keywords = {e6, f3, f4, fiscalpol, rer}, month = {September}, posted-at = {2009-09-18 08:36:13}, priority = {2}, publisher = {SSRN}, title = {Government Purchases and the Real Exchange Rate}, url = {http://ssrn.com/abstract=1469925}, year = {2009} }

TY - JOUR ID - citeulike:5801556 L3 - citeulike-article-id:5801556 N2 - Recent empirical research documents that an exogenous rise in government purchases in a given country triggers a persistent depreciation of its real exchange rate - which raises an important puzzle, as standard macro models predict an appreciation of the real exchange rate. This paper presents a simple model with limited international risk sharing that can account for the empirical real exchange rate response. When faced with a country-specific rise in government purchases, local households experience a negative wealth effect; they thus work harder, and domestic output increases. Under balanced trade (financial autarky) this supply-side effect is so strong that the terms of trade worsen, and the real exchange rate depreciates. In a bonds-only economy, an increase in government purchases triggers a real exchange rate depreciation, if the rise in government purchases is sufficiently persistent and/or labor supply is highly elastic. JF - Social Science Research Network Working Paper Series TI - Government Purchases and the Real Exchange Rate PB - SSRN KW - e6 KW - f3 KW - f4 KW - fiscalpol KW - rer AU - Kollmann, Robert PY - 2009/September/08/ UR - http://ssrn.com/abstract=1469925 ER -