The Composition of Government Spending and the Real Exchange Rate



the composition of government spending and the real exchange rate 19

Table 3: Relative Price of Nontradables: Long-Run Estimates

(1)

(2)

(3)

(4)

(5)

(6)

Govt. Consumption

0.89

0.36

0.96

1.70

6.73

1.26

(.70)

(1.39)

(.79)

(.90)*

(1.32)***

(.88)

Govt. Investment

-2.25

8.41

-3.54

-1.86

0.15

-3.36

(.95)**

(3.79)**

(1.07)***

(1.09)*

(1.76)

(.92)***

GDP per capita

0.63

1.05

0.59

0.63

0.79

0.54

(.04)***

(.12)***

(.05)***

(.05)***

(.07)***

(.05)***

Trade Balance

-0.44

0.58

-0.40

0.59

0.99

0.67

(.40)

(1.05)

(.44)

(.36)

(.50)*

(.43)

R2

0.71

0.86

0.69

0.74

0.92

0.70

Marginal R2

0.58

0.80

0.56

0.71

0.89

0.68

Observations

418

66

352

242

88

154

Sample

All

G3

Non-G3

EMU

E4

Non-E4

Note: Relative Price of Nontradables is the unit value of services relative to manufactur-
ing; ln stands for natural logarithm; Govt. Consumption is government consumption as
a share of GDP; Govt. Investment is government investments as a share of GDP; GDP
per capita is the log of real GDP per capita; Trade Balance is the trade balance as a share
of GDP.

Marginal R2 is constructed by subtracting the ratio of the residual sum of squares of fixed
effects regression with the set of control variables over the residual sum of square of the
regression on the fixed effects only from one.

***,**,* significant at 1,5 and 10 percent respectively.



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