Examination of the effects of public spending and trade policy on real exchange rate in Cameroon
Examination of the effects of public spending and trade policy on real exchange rate in Cameroon

Summary/Abstract: The study adopts the inter-temporal model of Rodríguez (1989) and Edward (1989) extended inElbadawi and Soto (1997) to empirically examine the effect of public expenditure and trade openness on thereal exchange rate using Cameroon data from 1977 to 2010. After exploring some issues on exchange rateand reviewing the relevant literature, the study employs residual based-cointegration technique. All thevariables were stationary at level form or first differences. Public spending significantly appreciates the realexchange likewise the trade openness variable in the longrun. The results of the study suggests thatappreciation of real exchange rate could be prevented by contracting public spending or adopting restrictivetrade measures especially in the long run.

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