The Impact of The Government Expenditures Shocks on the Current Account and Real Effective Exchange Rate in the Oil and Nonoil Developing Countries: Panel VAR Approach

Document Type : Research Paper

Authors

1 Ph.D. Candidate in Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Ira

2 Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.

Abstract

The performance of the fiscal policy has always been one of the topics discussed in macroeconomics. The main purpose of this paper is to investigate the effect of government expenditures on the current account and the real effective exchange rate in two groups of oil and non-oil developing countries. In this regard, we used Panel VAR method and annual data during 2001-2015. Empirical findings show that the government expenditures shocks on the current account in the two groups of oil and non-oil countries is negative, leading to current account deficits, but in the long run, the current account deficit in oil countries is increasing and in non-oil countries is decreasing. The results also showed that the impact of government expenditures shocks on the real effective exchange rate in the two groups of oil and non-oil countries is different. So that the impact of government expenditures in non-oil countries in the short term will increase real effective exchange rate and in the mid and long term it will decrease, but in oil countries, the government expenditures shocks will increase the real effective exchange rate.

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References

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Quarterly Journal of Applied Theories of Economics
Volume 6, Issue 3 - Serial Number 22
November 2019
Pages 49-72

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