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

Author

Listed:
  • Oscar Bajo-Rubio

    (Department of Economics, Universidad de Castilla-La Mancha, 13071 Ciudad Real, Spain)

  • Burcu Berke

    (Department of Economics, Niğde Ömer Halisdemir University, 51240 Niğde, Turkey)

  • Vicente Esteve

    (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia, Spain)

Abstract

The factors influencing the real exchange rate are an important issue for a country’s price competitiveness, which is especially relevant to those countries belonging to a monetary union. In this paper, we analyse the relationship between fiscal policy and the real exchange rate for the case of Spain. In particular, we explore how changes in government spending, differentiating between consumption and investment, can affect the long-run evolution of the real exchange rate vis-à-vis the euro area. The distinction between two alternative definitions of the real exchange rate, based on consumption price indices and export prices, respectively, will also prove to be relevant for the results.

Suggested Citation

  • Oscar Bajo-Rubio & Burcu Berke & Vicente Esteve, 2018. "Fiscal policy and the real exchange rate: Some evidence from Spain," Working Papers 1810, Department of Applied Economics II, Universidad de Valencia.
  • Handle: RePEc:eec:wpaper:1810
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    Keywords

    Real exchange rate; Government consumption; Government investment;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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