Abstract
The purpose of this paper is to investigate threshold effects of changes in government expenditure on real exchange rate for a panel of 41 countries during the period of 2000– 2015 in a nonlinear model framework. Panel threshold regression(PTR) model of Hansen(1999) is employed to estimate effects of possible threshold(s) of government expenditure on the real exchange rate. The results indicate that a threshold of government expenditure relative to GDP exists at about 17.65% level and a positive shock to government expenditure tends to induce real exchange rate appreciation at the government expenditure level below the threshold. However, no significant effect was detected when it was above the threshold level.
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