Kollmann, Robert; Basu, Parantap - European Centre for Advanced Research in Economics and … - 2010
Empirical research documents that an exogenous rise in government purchases in a given country triggers a depreciation … real exchange rate. We argue that this prediction reflects the assumption that government purchases are unproductive. Using … a simple model, we show that the real exchange rate may depreciate in response to a rise in government purchases, if …