Download or read book Exchange Rate Misalignment and Growth A Myth written by Carlos Goncalves and published by International Monetary Fund. This book was released on 2017-12-21 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: The impact of real exchange rate movements on GDP growth is a hotly debated issue both in policy and academic circles. In this paper, we provide evidence suggesting that the association between exchange rate misalignment and growth for a broad panel of countries is very weak. Controlling for country fixed effects, time effects and initial GDP, a more depreciated currency is associated with higher growth if one does not exclude outliers. However, this positive association always vanishes after controling for the savings rate. Importantly, this applies for both a large panel of countries and for the emerging economies subsample.
Download or read book Misalignment of Exchange Rates written by Richard C. Marston and published by University of Chicago Press. This book was released on 2008-04-15 with total page 332 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economists writing on flexible exchange rates in the 1960s foresaw neither the magnitude nor the persistence of the changes in real exchange rates that have occurred in the last fifteen years. Unexpectedly large movements in relative prices have lead to sharp changes in exports and imports, disrupting normal trading relations and causing shifts in employment and output. Many of the largest changes are not equilibrium adjustments to real disturbances but represent instead sustained departures from long-run equilibrium levels, with real exchange rates remaining "misaligned" for years at a time. Contributors to Misalignment of Exchange Rates address a series of questions about misalignment. Several papers investigate the causes of misalignment and the extent to which observed movements in real exchange rates can be attributed to misalignment. These studies are conducted both empirically, through the experiences of the United States, Great Britain, Japan, and the countries of the European Monetary System, and theoretically, through models of imperfect competition. Attention is then turned to the effects of misalignment, especially on employment and production, and to detailed estimates of the effects of changes in exchange rates on several industries, including the U.S. auto industry. In response to the contention that there is significant "hysteresis" in the adjustment of employment and production to changes in exchange rates, contributors also attempt to determine whether the effects of misalignment can be reversed once exchange rates return to earlier levels. Finally, the issue of how to avoid—or at least control—misalignment through macroeconomic policy is confronted.
Download or read book The Real Exchange Rate and Growth Revisited written by Yanliang Miao and published by International Monetary Fund. This book was released on 2010-03-01 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is good reason and much evidence to suggest that the real exchange rate matters for economic growth, but why? The "Washington Consensus" (WC) view holds that real exchange rate misalignment implies macroeconomic imbalances that are themselves bad for growth. In contrast, Rodrik (2008) argues that undervaluation relative to purchasing power parity is good for growth because it promotes the otherwise inefficiently small tradable sector. Our main result is that WC and the Rodrik views of the role of misalignment in growth are observationally equivalent for the main growth regressions he reports. There is an identification problem: Determinants of misalignment are also likely to be independent drivers of growth, and these types of growth regressions are hard-pressed to disentangle the different channels. However, we confirm that not only are overvaluations bad but undervaluations are also good for growth, a result squarely consistent with the Rodrik story but one that requires some gymnastics from the WC viewpoint.
Download or read book When and Why Worry About Real Exchange Rate Appreciation The Missing Link Between Dutch Disease and Growth written by International Monetary Fund and published by International Monetary Fund. This book was released on 2010-12-01 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We review the literature on Dutch disease, and document that shocks that trigger foreign exchange inflows (such as natural resource booms, surges in foreign aid, remittances, or capital inflows) appreciate the real exchange rate, generate factor reallocation, and reduce manufacturing output and net exports. We also observe that real exchange rate misalignment due to overvaluation and higher volatility of the real exchange rate lower growth. Regarding the effect of undervaluation of the exchange rate on economic growth, the evidence is mixed and inconclusive. However, there is no evidence in the literature that Dutch disease reduces overall economic growth. Policy responses should aim at adequately managing the boom and the risks associated with it.
Download or read book Real Exchange Rate Misalignments and Growth written by Ofair Razin and published by . This book was released on 1997 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Real exchange rate (RER) misalignment is now a standard concept in international macroeconomic theory and policy. However, there is neither a consensus indicator of misalignment, nor an agreed upon methodology for constructing such an indicator. This paper constructs an indicator of RER misalignment for a large sample of developed and developing countries. This indicator is based on a well-structured but simple extension of an IS-LM model of an open economy. The paper then uses regression analysis to explore whether RER misalignments are related to country growth experiences. Interestingly the work finds that there are important non-linearities in the relationship. Only very high over-valuations" appear to be associated with slower economic growth, while moderate to high (but not very high) under-valuations appear to be associated with more rapid economic growth.
Download or read book Real Exchange Rate Misalignment and Growth written by Ofair Razin and published by . This book was released on 1997 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Real Exchange Rate Behavior and Economic Growth written by Mr.Ghiath Shabsigh and published by International Monetary Fund. This book was released on 1999-03-01 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effect of the real exchange rate misalignment (RERMIS) on the collective economic growth of Egypt, Jordan, Morocco, and Tunisia. The paper constructs three measures of exchange rate misalignment based on purchasing power parity; a black market exchange rate; and a structured model. The empirical investigation confirmed the adverse effect of RERMIS on growth, using all measures of RERMIS, as predicted by endogenous growth models. The results also highlighted the role of other factors; specifically, capital growth and population have the theoretical signs predicted by the Solow growth model and are statistically significant.
Download or read book Exchange Rate Misalignment in Developing Countries written by Sebastian Edwards and published by Johns Hopkins University Press. This book was released on 1988 with total page 110 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article analyzes the theory of equilibrium real exchange rates and defines misalignment as a deviation of the real exchange rate (RER) from its equilibrium level. The role of macroeconomic policies is then analyzed under three alternative nominal exchange rate regimes: predetermined nominal exchange rates; floating nominal rates; and dual or black market nominal exchange rates. This discussion points out how inconsistent macroeconomic policies often lead to real exchange rate misalignment. Corrective measures, including nominal devaluation and several alternative approaches, are then evaluated.
Download or read book Devaluing to Prosperity written by Surjit S. Bhalla and published by Peterson Institute. This book was released on 2012 with total page 283 pages. Available in PDF, EPUB and Kindle. Book excerpt: Experts have long questioned the effect of currency undervaluation on overall GDP growth. They have viewed the underlying basis for this policy--intervention in currency markets to keep the price of the home currency cheap--as doomed to failure on both theoretical and empirical grounds. Moreover, the view has been that overvalued currencies hurt economic growth but undervalued currencies cannot help in growth acceleration. A parallel belief has been that the real exchange rate--that is, a country's competitive ranking--cannot be affected by merely changing the nominal exchange rate. This view is grounded in the belief, and expectation, that inflation follows any devaluation of currency. Hence, the conclusion that the real exchange rate cannot be affected by policy. However, given China's remarkable performance in recent decades, this traditional view is being reexamined. China devalued its currency by large amounts in the 1980s and early 1990s; instead of inflation, it achieved high growth. Today, there is near-universal demand for China to significantly revalue its currency. This book examines the veracity of various propositions relating to currency misalignments, and their effect on various items of policy interest. The author subjects more than a century of global exchange rate management and growth outcomes to rigorous empirical analysis and demonstrates convincingly that a country can systematically devalue and yet prosper. The analysis helps in interpreting several phenomena, especially for the last three decades, which have witnessed high economic growth in developing countries, a widening of global imbalances, and a sharp increase in reserve accumulation, particularly among high-growth Asian economies. The book shows that these events are strongly linked via a consistent policy of currency undervaluation in Asian economies.
Download or read book Exchange Rate Misalignment written by Lawrence E. Hinkle and published by World Bank Publications. This book was released on 1999 with total page 638 pages. Available in PDF, EPUB and Kindle. Book excerpt: The study cautiously identifies exchange rate misalignment as an important element in most of the exchange rate crises that plagued the developing world during the last decade. Given that the increasing integration of world capital markets, has escalated the costs of such crises, a broad consensus emerged in recent years, that the overriding objective of exchange rate policy in developing countries, should be to avoid episodes of prolonged, and substantial misalignment, i.e., situations in which the actual real exchange rate differs significantly from its long-run equilibrium value. It was the Bank's involvement in one such misalignment episode, that eventually led to this book. Following an overview on the concepts and measurement of exchange rate misalignment, its impact on the purchasing power parity, and the relationship between the external real exchange rate (RER), and the two-good internal RER for tradables non-tradables, the study presents methodologies - empirical applications - for estimating the RER equilibrium. The study reaches an optimistic conclusion - that enough is known to identify cases of misalignment, and be able to sound clear warning signals. The implication for exchange rate policy is that ignorance about the empirical value of the equilibrium exchange rate, cannot be used to clinch arguments for extreme exchange arrangements, such as clean floats, currency boards, and "dollarization."
Download or read book When and Why Worry About Real Exchange Rate Appreciation The Missing Link Between Dutch Disease and Growth written by Nicolás E. Magud and published by . This book was released on 2014 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: We review the literature on Dutch disease, and document that shocks that trigger foreign exchange inflows (such as natural resource booms, surges in foreign aid, remittances, or capital inflows) appreciate the real exchange rate, generate factor reallocation, and reduce manufacturing output and net exports. We also observe that real exchange rate misalignment due to overvaluation and higher volatility of the real exchange rate lower growth. Regarding the effect of undervaluation of the exchange rate on economic growth, the evidence is mixed and inconclusive. However, there is no evidence in the literature that Dutch disease reduces overall economic growth. Policy responses should aim at adequately managing the boom and the risks associated with it.
Download or read book Real Exchange Rates Economic Complexity and Investment written by Steve Brito and published by International Monetary Fund. This book was released on 2018-05-10 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that the response of firm-level investment to real exchange rate movements varies depending on the production structure of the economy. Firms in advanced economies and in emerging Asia increase investment when the domestic currency weakens, in line with the traditional Mundell-Fleming model. However, in other emerging market and developing economies, as well as some advanced economies with a low degree of structural economic complexity, corporate investment increases when the domestic currency strengthens. This result is consistent with Diaz Alejandro (1963)—in economies where capital goods are mostly imported, a stronger real exchange rate reduces investment costs for domestic firms.
Download or read book Fear of Appreciation written by Eduardo Levy-Yeyati and published by World Bank Publications. This book was released on 2007 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: In recent years the term "fear of floating" has been used to describe exchange rate regimes that, while officially flexible, in practice intervene heavily to avoid sudden or large depreciations. However, the data reveals that in most cases (and increasingly so in the 2000s) intervention has been aimed at limiting appreciations rather than depreciations, often motivated by the neo-mercantilist view of a depreciated real exchange rate as protection for domestic industries. As a first step to address the broader question of whether this view delivers on its promise, the authors examine whether this "fear of appreciation" has a positive impact on growth performance in developing economies. The authors show that depreciated exchange rates appear to induce higher growth, but that the effect, rather than through import substitution or export booms as argued by the mercantilist view, works largely through the deepening of domestic savings and capital accumulation.
Download or read book Real Exchange Rates Saving and Growth written by Peter J. Montiel and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The view that policies directed at the real exchange rate can have an important effect on economic growth has been gaining adherents in recent years. Unlike the traditional "misalignment" view that temporary departures of the real exchange rate from its equilibrium level harm growth by distorting a key relative price in the economy, the recent literature stresses the growth effects of the equilibrium real exchange rate itself, with the claim being that a depreciated equilibrium real exchange rate promotes economic growth. While there is no consensus on the precise channels through which this effect is generated, an increasingly common view in policy circles points to saving as the channel of transmission, with the claim that a depreciated real exchange rate raises the domestic saving rate -- which in turn stimulates growth by increasing the rate of capital accumulation. This paper offers a preliminary exploration of this claim. Drawing from standard analytical models, stylized facts on saving and real exchange rates, and existing empirical research on saving determinants, the paper assesses the link between the real exchange rate and saving. Overall, the conclusion is that saving is unlikely to provide the mechanism through which the real exchange rate affects growth.
Download or read book Fiscal Rules for Resource Windfall Allocation written by Keyra Primus and published by International Monetary Fund. This book was released on 2016-09-16 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: Managing resource revenues is a critical policy issue for small open resource-rich countries. This paper uses an open economy dynamic stochastic general equilibrium model to analyze the transmission of resource price shocks and a shock to resource production in the Trinidad and Tobago economy. It also applies alternative fiscal rules to determine the optimal allocation of resource windfalls between spending today and saving in a sovereign wealth fund. The results show that spending all the resource windfall on consumption and investment creates more volatility and amplifies Dutch disease effects, when compared to the case where all the excess revenues are saved. Also, neither a policy of full spending nor full saving of the surplus revenue inflows is optimal if the government is concerned about both household welfare and fiscal stability. In order to minimize deviations from both objectives, the optimal fiscal response suggests that a larger fraction of the resource windfalls should be saved.
Download or read book A New Explanation on Real Exchange Rate Misalignment Effect on Economic Growth written by Oscar Kuikeu and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The main aim of this contribution is to study the link between the real exchange rate misalignment and the economic growth and to show the empirical proof from the case of Cameroon. An emerging country in which the exchange rate was devalued in order to deal with the major macroeconomic imbalances that have affected the country during the 1980 decade. Broadly speaking, empirical evidence confirms well the view that macroeconomic framework is conducive to economic growth; indeed, while, we can show that, the real exchange rage misalignment represents the instability of the macroeconomic framework, empirical evidence show that, in Cameroon, the economic growth is adversely affects by the misalignment of the real exchange rate. From an empirical point of view, this contribution provides some guidelines for specifying and estimating growth equation with time series data. L'objet principal de cette contribution est d'examiner la relation entre distorsion (mésalignement) du taux de change réel et croissance économique au Cameroun, une économie émergente où le taux de change a été dévalué lorsque celui-ci était confronté à d'importants déséquilibres macroéconomiques; d'une manière générale, les résultats de l'investigation empirique confirment l'idée, assez répandue dans la littérature, que la stabilité du cadre macroéconomique est un facteur d'augmentation de la croissance économique, en effet, le revenu/habitant de l'économie camerounaise est négativement et significativement lié aux distorsions de son taux de change réel. Du point de vue de l'analyse empirique, cette contribution fournit des lignes directives pour des analyses en séries temporelles des déterminants de la croissance économique.
Download or read book Revisiting the Real Exchange Rate Misalignment economic Growth Nexus Via the Across sector Misallocation Channel written by Claire GIORDANO and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
