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Abstract

The Government of Algeria has pursed a relatively expansionary fiscal policy in recent years, thanks to rising oil prices and revenues. The paper explores the potential effects of such a stance on real exchange rate and uncovers a relatively small appreciating effect of increased government capital expenditure. This is explained by the fact that a significant share of capital spending falls into tradable imported goods. However, the envisaged increase in capital spending, if well designed and implemented, might in the long-run translate into rising operations and maintenance expenditure—mostly nontradable goods—thereby causing a higher real appreciation. This implies that Algeria should carefully consider the implications of its public investment program on recurrent expenditure.

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File URL: http://halshs.archives-ouvertes.fr/docs/00/55/69/35/PDF/2008.04.pdf
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Paper provided by HAL in its series Working Papers with number halshs-00556935.

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Date of creation: 18 Jan 2011
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Handle: RePEc:hal:wpaper:halshs-00556935

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00556935/en/
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Keywords: Government capital expenditure; real exchange rate; oil;

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This paper has been announced in the following NEP Reports:

• NEP-ALL-2011-01-30 (All new papers)
• NEP-ARA-2011-01-30 (Arab World)

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1. Paul Cashin & Luis Felipe Céspedes & Ratna Sahay, 2003. "Commodity Currencies and the Real Exchange Rate," Working Papers Central Bank of Chile 236, Central Bank of Chile.
   
   • Cashin, Paul & Cespedes, Luis F. & Sahay, Ratna, 2004. "Commodity currencies and the real exchange rate," Journal of Development Economics, Elsevier, vol. 75(1), pages 239-268, October.
2. Taline Koranchelian, 2005. "The Equilibrium Real Exchange Rate in a Commodity Exporting Country: Algeria's Experience," IMF Working Papers 05/135, International Monetary Fund.
3. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
   
   • Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
4. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November.
5. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
   
   • Gonzalo, Jesús, . "Five alternative methods of estimating long-run equilibrium relationships," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/731, Universidad Carlos III de Madrid.
6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
7. Ronald MacDonald & Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals - A Methodological Comparison of BEERs and FEERs," IMF Working Papers 98/67, International Monetary Fund.
8. Evans, Paul, 1988. "Are Consumers Ricardian? Evidence for the United States," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 983-1004, October.

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