Real Exchange Rate Misalignments And Growth

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Real Exchange Rate Misalignments and Growth

Ofair Razin,Susan M. Collins
Real Exchange Rate Misalignments and Growth Book PDF

Author : Ofair Razin,Susan M. Collins
Publisher : Unknown
Page : 44 pages
File Size : 52,8 Mb
Release : 1997
Category : Economic development
ISBN : UCSD:31822025575440

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Real Exchange Rate Misalignments and Growth by Ofair Razin,Susan M. Collins Pdf

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.

The Real Exchange Rate and Growth Revisited

Yanliang Miao,Mr.Andrew Berg
The Real Exchange Rate and Growth Revisited Book PDF

Author : Yanliang Miao,Mr.Andrew Berg
Publisher : International Monetary Fund
Page : 26 pages
File Size : 49,8 Mb
Release : 2010-03-01
Category : Business & Economics
ISBN : 9781451963755

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The Real Exchange Rate and Growth Revisited by Yanliang Miao,Mr.Andrew Berg Pdf

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.

Misalignment of Exchange Rates

Richard C. Marston
Misalignment of Exchange Rates Book PDF

Author : Richard C. Marston
Publisher : University of Chicago Press
Page : 332 pages
File Size : 49,8 Mb
Release : 2008-04-15
Category : Business & Economics
ISBN : 9780226507255

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Misalignment of Exchange Rates by Richard C. Marston Pdf

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.

When and Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease and Growth

International Monetary Fund
When and Why Worry About Real Exchange Rate Appreciation The Missing Link Between Dutch Disease and Growth Book PDF

Author : International Monetary Fund
Publisher : International Monetary Fund
Page : 34 pages
File Size : 40,6 Mb
Release : 2010-12-01
Category : Business & Economics
ISBN : 9781455210787

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When and Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease and Growth by International Monetary Fund Pdf

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.

Exchange Rate Misalignment

Lawrence E. Hinkle,Peter J. Montiel,Peter Montiel
Exchange Rate Misalignment Book PDF

Author : Lawrence E. Hinkle,Peter J. Montiel,Peter Montiel
Publisher : World Bank Publications
Page : 638 pages
File Size : 50,9 Mb
Release : 1999
Category : Business & Economics
ISBN : 9780195211269

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Exchange Rate Misalignment by Lawrence E. Hinkle,Peter J. Montiel,Peter Montiel Pdf

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."

Exchange Rate Misalignment and Growth: A Myth?

Carlos Goncalves,Mauro Rodrigues
Exchange Rate Misalignment and Growth A Myth Book PDF

Author : Carlos Goncalves,Mauro Rodrigues
Publisher : International Monetary Fund
Page : 15 pages
File Size : 53,9 Mb
Release : 2017-12-21
Category : Business & Economics
ISBN : 9781484330135

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Exchange Rate Misalignment and Growth: A Myth? by Carlos Goncalves,Mauro Rodrigues Pdf

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.

Exchange Rate Misalignment in Developing Countries

Sebastian Edwards,World Bank
Exchange Rate Misalignment in Developing Countries Book PDF

Author : Sebastian Edwards,World Bank
Publisher : Johns Hopkins University Press
Page : 110 pages
File Size : 52,7 Mb
Release : 1988
Category : Business & Economics
ISBN : STANFORD:36105040907409

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Exchange Rate Misalignment in Developing Countries by Sebastian Edwards,World Bank Pdf

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.

Real Exchange Rates, Economic Complexity, and Investment

Steve Brito,Mr.Nicolas E Magud,Mr.Sebastian Sosa
Real Exchange Rates Economic Complexity and Investment Book PDF

Author : Steve Brito,Mr.Nicolas E Magud,Mr.Sebastian Sosa
Publisher : International Monetary Fund
Page : 21 pages
File Size : 49,6 Mb
Release : 2018-05-10
Category : Business & Economics
ISBN : 9781484356340

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Real Exchange Rates, Economic Complexity, and Investment by Steve Brito,Mr.Nicolas E Magud,Mr.Sebastian Sosa Pdf

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.

The Economics of Globalization

Assaf Razin,Efraim Sadka
The Economics of Globalization Book PDF

Author : Assaf Razin,Efraim Sadka
Publisher : Cambridge University Press
Page : 0 pages
File Size : 50,5 Mb
Release : 2008-08-28
Category : Business & Economics
ISBN : 0521074355

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The Economics of Globalization by Assaf Razin,Efraim Sadka Pdf

The growing economic openness expressed in the globalization of independent economic systems has created problems as well as opportunities that cross formal borders in new and unexpected ways. Professors Razin and Sadka have compiled a series of papers based on lectures delivered before the 1996 Congress of the International Institute of Public Finance, which explore these issues in selected areas of public finance. The subjects covered range from the consequences of research and development to the redistribution of income and from taxation of multinationals and labor migration to European currency integration.

Dollar Adjustment: How Far? Against What?

Anonim
Dollar Adjustment How Far Against What Book PDF

Author : Anonim
Publisher : Peterson Institute
Page : 308 pages
File Size : 55,7 Mb
Release : 2024-06-29
Category : Dollar, American
ISBN : 0881325848

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Dollar Adjustment: How Far? Against What? by Anonim Pdf

The dollar rose about 35 percent in real terms from 1995 to the end of 2001, supporting the US economy of the late 1990s but pushing the current account deficit to a record high. This book looks at the impact of this, examining intervention to achieve desired currency values and the impact of a major dollar realignment on worldwide economies.

Devaluing to Prosperity

Surjit S. Bhalla
Devaluing to Prosperity Book PDF

Author : Surjit S. Bhalla
Publisher : Peterson Institute
Page : 283 pages
File Size : 53,9 Mb
Release : 2012
Category : Business & Economics
ISBN : 9780881326512

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Devaluing to Prosperity by Surjit S. Bhalla Pdf

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.

Fiscal Rules for Resource Windfall Allocation

Keyra Primus
Fiscal Rules for Resource Windfall Allocation Book PDF

Author : Keyra Primus
Publisher : International Monetary Fund
Page : 49 pages
File Size : 48,5 Mb
Release : 2016-09-16
Category : Business & Economics
ISBN : 9781475536775

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Fiscal Rules for Resource Windfall Allocation by Keyra Primus Pdf

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.

Real Exchange Rates, Saving and Growth:

Peter J. Montiel,Luis Servén
Real Exchange Rates Saving and Growth Book PDF

Author : Peter J. Montiel,Luis Servén
Publisher : World Bank Publications
Page : 36 pages
File Size : 41,5 Mb
Release : 2008
Category : Currencies and Exchange Rates
ISBN : 8210379456XXX

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Real Exchange Rates, Saving and Growth: by Peter J. Montiel,Luis Servén Pdf

Abstract: 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.

Fiscal Policies and Growth in the World Economy

Jacob A. Frenkel,Assaf Razin
Fiscal Policies and Growth in the World Economy Book PDF

Author : Jacob A. Frenkel,Assaf Razin
Publisher : MIT Press
Page : 668 pages
File Size : 44,8 Mb
Release : 1996
Category : Business & Economics
ISBN : 0262561042

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Fiscal Policies and Growth in the World Economy by Jacob A. Frenkel,Assaf Razin Pdf

Covering a full array of topics in open economy macro and public economics, Fiscal Policies and Growth in the World Economy has been thoroughly revised and extended. The added material in this new edition includes stochastic rational-expectations extensions of the Mundell-Fleming model, the development of a dynamic-optimizing approach of the trade balance, and an entirely new part on issues of international economic convergence, which also contains a comprehensive policy overview. Other chapters have been updated or reorganized, and there is a brief guide to solving typical dynamic macro problems along with a printout of software suitable for numerical simulations. A companion diskette containing solutions in dynamic macro problems and some sample programs is available in GAUSS for IBM. The exercises and solutions manual by Krueger, Ostry, and Yuen has also been updated and extended. Fiscal Policies and Growth in the World Economy has been used successfully in graduate and senior undergraduate courses in international economics and public finance. The objective of this new edition remains the same as before: to treat the major topics in macro and public economics using both traditional and modern approaches. The traditional approach is first explained, from the simple income-expenditure model to the more advanced stochastic Mundell-Fleming model. The modern intertemporal approach is then presented, starting with the simple two-period model and extending it to a full-fledged dynamic model. Other sections review recent developments in the world economy; government spending, budget deficits, and differences across international taxation; and economic growth in the world economy, especially the convergence of income and growth levels across countries.

Exchange Rate Overvaluation and Trade Protection

Howard J. Shatz,David G. Tarr
Exchange Rate Overvaluation and Trade Protection Book PDF

Author : Howard J. Shatz,David G. Tarr
Publisher : World Bank Publications
Page : 36 pages
File Size : 54,5 Mb
Release : 2000
Category : Black market in foreign exchange
ISBN : 8210379456XXX

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Exchange Rate Overvaluation and Trade Protection by Howard J. Shatz,David G. Tarr Pdf

"Lessons from world experience about the consequences of exchange rate overvaluation (the frequent cause of trade crises), the consequences of trying to defend an overvalued exchange rate, and the most appropriate policies for resolving an overvaluation"--Cover.