Buoyant capital spending and worries over real appreciation: cold facts from Algeria, Issues 2007-2286
Boileau Loko, Kangni Kpodar, Oumar Diallo, International Monetary Fund. Middle East and Central Asia Dept
IMF, 2007 - Business & Economics - 21 pages
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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7.9 Significant Appendix appreciate the real assume Balassa-Samuelson effect basket of consumption capital spending fall captures the elasticity Cashin cointegrating vectors consumption or spending current expenditure denotes significance differential productivity DLGK domestic basket domestic price economic infrastructure effective exchange rate exchange rate appreciation expenditure to GDP export sector F-Statistic factor of production factors final tradable foreign currency foreign nontraded sector foreign price Fund staff estimates higher hydrocarbon prices import increase in capital increase in government Johansen approach labor labor mobility Max-Eigen statistics nontraded and tradable null hypothesis number of lags parameter percent critical level percent of GDP price of oil primary commodity private consumption private sector production function productivity differential public investment program real appreciation real effective exchange real exchange rate real oil price real price reject the null represents share of non-traded small open economy Sonatrach Statistics Critical Value total aggregate demand unit root variables