Fiscal policy and the real exchange rate: some evidence from Spain

Bajo‐Rubio, Oscar; Berke, Burcu; Esteve, Vicente

doi:10.1007/s10663-018-9415-9

Cited by 7 publications

(5 citation statements)

References 40 publications

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“…In the end, the stated macroeconomic processes lead to the increase of the real exchange rate, i.e. to the real exchange rate appreciation and to a gain in competitiveness (Bajo-Rubio et al, 2020). This theory has been extensively adopted in the literature by numerous authors: Bénétrix and Lane (2013); Bouakez and Eyquem (2015); Klein and Linnemann, (2019).…”

Section: Literature Reviewmentioning

confidence: 99%

“…In the economic literature, competitiveness is considered to be the ability of a country to meet challenges and be successful compared to others, especially in relation to the goods and services of other countries (Bajo-Rubio et al, 2020). In practice, competitiveness is considered to be the real exchange rate and is calculated as the ratio between the nominal exchange rate and the level of prices in an economy.…”

Section: Introductionmentioning

confidence: 99%

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Competitiveness, fiscal policy and corruption: evidence from Central and Eastern European countries

Ţigănaşu

Pascariu

Lupu

2022

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Research background: The transformations induced by global challenges call for new approaches towards competitiveness and thus require a consistent rethinking of strategies and mechanisms so that they could be better adapted to the constantly changing context. Prior to the European Union (EU) accession, the Central and Eastern European (CEE) states began a broad process of economic reforms, including trade liberalization, mass privatization, exchange rate liberalization, all of which led to a wider opening to new markets, the creation of new opportunities for production and to ensuring the competitiveness of companies on foreign markets. By far, the most important step in the post-communist period was joining the EU, achieved after 2004. Over time, these states have faced, on the one hand, issues related to addressing systemic vulnerabilities, and on the other hand, finding the most appropriate measures to induce competitiveness. The influence of public policies on competitiveness is still an issue that needs to be debated, our study proposing to examine the reaction of external competitiveness to the increase of government spending and corruption. Purpose of the article: The aim of this paper is to analyze the impact of fiscal policies and corruption on the external competitiveness of the eleven countries from Eastern Europe (Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) for the period 1995?2020. The choice of this time interval is to better capture the trinomial relationship between competitiveness, fiscal policy and corruption before and after the process of integration of the CEE states into the EU. Methods: The methodology chosen is based on ARDL (Autoregressive Distributed Lag) with structural breaks, the period taken into account being 1995?2020. The Unit root test of augmented Dickey?Fuller ADF (2016) was used to assess the time series stationarity. The test developed by Bai and Perron (2003) is applied to detect structural breaks, by resorting to the LM test. The tests for the cointegration between the considered variables, using the ARDL model, proposed by Pesaran et al. (2001), were also part of the research. The causality test of Granger et al. (2000) was used to assess the conditionality between the indicators. By applying these methods, it was highlighted that, especially after 2007, in the states under analysis, expansionary fiscal policies have led to internal devaluations of the currency, which ultimately increased external competitiveness, measured as real effective exchange rate. Instead, corruption has a negative impact on competitiveness. Findings & value added: The obtained results point out the relationship between competitiveness, fiscal policy and corruption in CEE countries. In the case of those that have a high competitiveness, even if there are large government expenditures, there is also an economic environment conducive to the implementation of measures that generate added value on a large scale. Conversely, in countries where corruption is high, the impact of government fiscal policies on competitiveness is reduced due to the negative effects caused by this phenomenon. Our study brings at least two contributions to the literature. First of all, the research shows how a growth in public spending affects the competitiveness of CEE economies through the real exchange rate. Secondly, it takes into account the phenomenon of corruption applied to Eastern countries, emphasizing a decrease in the external competitiveness of these economies in response to the manifestation of corruption.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Competitiveness, fiscal policy and corruption: evidence from Central and Eastern European countries

Ţigănaşu

Pascariu

Lupu

2022

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“…Nevertheless, it is important to note that the real appreciation can occur in conditions of increased government consumption of non-tradable goods (Agustin S. Benetrix and Lane 2013;Oscar Bayo-Rubio, Burcu Berke, and Vicente Esteve 2014). Also, as one of the possible generator of the current account imbalance is well known Balassa-Samuelson effect, which means that differences in the labor productivity between tradable and non-tradable sectors are resulted in a different price levels between countries.…”

Section: Mechanisms Of the Impact Of Fiscal Deficits On The Current Accountmentioning

confidence: 99%

The effect of fiscal deficits on the external imbalances in the European Union

Josifidis

Dragutinović-Mitrović

Bodor

2021

Panoeconomicus

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This paper analyzes the effect of the fiscal deficit on the current account deficit in the European Union during the period 1995-2018. The purpose is to examine to what extent an increase in government spending affects the deterioration of terms of trade and contributes to increasing external imbalances. Econometric methods for heterogeneous panel data models are used to analyse the existence of a long-run relationship between the fiscal deficit and the current account. The empirical findings indicate that the twin deficits hypothesis is not confirmed for the whole European Union, but only for a certain number of member states, where a long-run relationship still exists, confirming the impact of the fiscal deficit on the current account.

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“…With the side of neo-Keynesians, in the traditional Mundell–Fleming model a higher government spending raises interest rate, which results in higher capital inflows that entails a nominal and real exchange rate appreciation. The model also considers that since government spending is mostly concentrated on home-produced products, the resulting decline in the demand for the imported goods relative to nontraded products, also leads to a real exchange rate appreciation (Bajo-Rubio et al , 2020).…”

Section: Review Of Related Literaturementioning

confidence: 99%

The effects of government spending shocks on real exchange rate in Ethiopia

Gidey

Nuru

2021

JEAS

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PurposeGovernment spending has inconclusive effect on real exchange rate. From the very beginning neoclassical economists argued that a rise in government spending brings depreciation in real exchange rate while neo-Keynesians claimed that government spending appreciates real exchange rate. Hence, the main purpose of this paper is to examine the effect of government spending shock and its components' shocks, namely government consumption and government investment on real exchange rate over the period 2001Q1–2016Q1 for Ethiopia.Design/methodology/approachTo examine the effects of government spending shocks on real exchange rate, Jordà's (2005) local projection method is employed in this study. The exogenous shocks, however, are identified recursively in a vector autoregressive model.FindingsThe impulse responses show that government spending shock leads to a statistically significant appreciation of real exchange rate in Ethiopia. This evidence supports the neo-Keynesian school of thought who predicts an appreciation of real exchange rate from a rise in government spending. While government investment shock depreciates real exchange rate on impact insignificantly, government consumption shock appreciates real exchange rate in this small open economy.Originality/valueThis research contributes to the scarce literature on the effect of fiscal policy shock on real exchange rate in small open economies like Ethiopia.

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Fiscal policy and the real exchange rate: some evidence from Spain

Cited by 7 publications

References 40 publications

Competitiveness, fiscal policy and corruption: evidence from Central and Eastern European countries

Competitiveness, fiscal policy and corruption: evidence from Central and Eastern European countries

The effect of fiscal deficits on the external imbalances in the European Union

The effects of government spending shocks on real exchange rate in Ethiopia

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