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On Public Investment, the Real Exchange Rate and Growth: Some Empirical Evidence from the UK and the USA

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  • Sugata Ghosh
  • Iannis A. Mourmouras
  • Sarmistha Pal
  • Ivan Paya

Abstract

This study is based on a two‐country endogenous growth model with optimizing agents, where public investment affects the real exchange rate and the long‐run growth rate, and does so in a non‐linear fashion. Non‐parametric regression analysis of quarterly data from the UK and the USA suggests that there is a significant non‐linear relationship between public investment and the real exchange rate, and also between public investment and the growth rate. This is also supported by our parametric generalized method of moments model that jointly determines the real exchange rate, growth rate and net foreign assets in terms of public investment.

Suggested Citation

  • Sugata Ghosh & Iannis A. Mourmouras & Sarmistha Pal & Ivan Paya, 2003. "On Public Investment, the Real Exchange Rate and Growth: Some Empirical Evidence from the UK and the USA," Manchester School, University of Manchester, vol. 71(3), pages 242-264, June.
    • Handle: RePEc:bla:manchs:v:71:y:2003:i:3:p:242-264
    DOI: 10.1111/1467-9957.00345
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