Real Exchange Rate Fluctuations and the Business Cycle: Evidence from Japan

1996 ◽  
Author(s):  
Bankim Chadha ◽  
Eswar S. Prasad
Keyword(s):  
Exchange Rate ◽  
Business Cycle ◽  
Real Exchange Rate ◽  
Exchange Rate Fluctuations ◽  
The Business Cycle

BUY NATIONAL AND THE BUSINESS CYCLE

2015 ◽  
Vol 20 (5) ◽  
pp. 1196-1218 ◽  
Author(s):  
Mario Larch ◽  
Wolfgang Lechthaler
Keyword(s):  
Exchange Rate ◽  
Business Cycle ◽  
Real Exchange Rate ◽  
Domestic Economy ◽  
Similar Magnitude ◽  
Fiscal Multipliers ◽  
Foreign Products ◽  
Public Consumption ◽  
The Business Cycle ◽  
Domestic Products

By concentrating a stimulus on the domestic economy, Buy National clauses are argued to lead to higher fiscal multipliers. We show that this argument falls short. Although it is true that domestic demand for domestic goods is increased, at the same time foreign demand for domestic goods is reduced by adverse changes in the real exchange rate. The two effects are of similar magnitude, so that Buy National clauses do not lead to a stronger stimulus to GDP. Apart from that, restricting the stimulus to domestic products makes the stimulus more expensive, because cheap foreign products are ignored. Consequently, real public consumption is lowered by Buy National clauses.

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