Government spending boosts economies during booms, but tightens during downturns.
The article examines how government spending affects the economy in developing countries. It shows that in flexible exchange rate systems, government spending increases are often followed by tighter monetary policies, leading to lower economic impact. However, in fixed exchange rate systems, during economic booms, and when monetary policies are expansionary, government spending has a stronger positive effect on the economy. Coordinating fiscal and monetary policies during economic expansions can significantly boost economic stimulus in developing countries.