EuroEconomica, Vol 34, No 2 (2015)

Abstract

This study adopts the inter-temporal model of Rodriguez (1989) and Edward (1989) extended in Elbadawi and Soto (1997) to empirically examine the effect of public expenditure and trade openness on the real exchange rate using in Cameroon data from 1997 to 2010. After exploring some issues on exchange rate and reviewing the relevant literature, the study employs residual based-cointegration technique. All the variables were stationary at level form of first differences. Public spending significantly appreciates the real exchange likewise the trade openness variable in the long term. The results of the study suggets that appreciation of real echange rate could be prevented by contracting public spending or adopting restrective trade measures especially in the long run.