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Real Exchange Rate Trends and Growth: A Model of East Asia

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  • Devereux, Michael B

Abstract

In contrast to the Balassa-Samuelson hypothesis, many fast-growing Asian countries have experienced little trend real exchange rate appreciation, or even depreciation. Moreover, their long-run real exchange rate trend seems to be dominated by movements in traded goods prices. A model is developed which is consistent with these observations. As in the Balassa-Samuelson model, productivity growth is concentrated in the traded goods sector. Nevertheless the real exchange rate may exhibit trend depreciation, driven by persistent deviations in the price of traded goods from those in the reference country. The key feature of the model is the presence of endogenous productivity growth in the distribution services sector. Copyright 1999 by Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 7 (1999)
Issue (Month): 3 (August)
Pages: 509-21

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Handle: RePEc:bla:reviec:v:7:y:1999:i:3:p:509-21

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  1. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  2. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262150476, December.
  3. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 34(2), pages 647-668, June.
  4. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, Elsevier, vol. 24(1-2), pages 45-68, February.
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  6. Asea, Patrick K & Mendoza, Enrique G, 1994. "The Balassa-Samuelson Model: A General-Equilibrium Appraisal," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 2(3), pages 244-67, October.
  7. Patrick K. Asea, 1994. "The Balassa-Samuelson Model: A General Equilibrium Appraisal," UCLA Economics Working Papers, UCLA Department of Economics 709, UCLA Department of Economics.
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Cited by:
  1. Sanchez, Marcelo, 2007. "Monetary stabilisation in a currency union: The role of catching up member states," Journal of Policy Modeling, Elsevier, Elsevier, vol. 29(1), pages 29-40.
  2. Anton Muscatelli & Franco Spinelli & Carmine Trecroci, 2001. "Real Exchange Rates in the Long Run: Evidence from Historical Data," Working Papers, Business School - Economics, University of Glasgow 2001_6, Business School - Economics, University of Glasgow.
  3. Frensch, Richard, 2001. "Some perspectives on currency relations between EMU and Central and East European EU accession countries," Economic Systems, Elsevier, Elsevier, vol. 25(3), pages 175-181, September.
  4. Cheung, Yin-Wong & Chinn, Menzie D. & Fujii, Eiji, 2007. "The overvaluation of Renminbi undervaluation," Journal of International Money and Finance, Elsevier, Elsevier, vol. 26(5), pages 762-785, September.
  5. Patrick Honohan & Philip R. Lane, 2003. "Divergent inflation rates in EMU," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 18(37), pages 357-394, October.
  6. Sánchez, Marcelo, 2006. "Implications of monetary union for catching-up member states," Working Paper Series, European Central Bank 0630, European Central Bank.
  7. Predrag Petrovic, 2012. "Harrod Balassa Samuelson effect and the role of distribution sector: an empirical case study of Serbia and EMU," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 30(1), pages 57-87.
  8. Ronald MacDonald & Luca Antonio Ricci, 2005. "The Real Exchange Rate And The Balassa-Samuelson Effect: The Role Of The Distribution Sector," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 10(1), pages 29-48, 02.
  9. Cushman, David O. & Michael, Nils, 2011. "Nonlinear trends in real exchange rates: A panel unit root test approach," Journal of International Money and Finance, Elsevier, Elsevier, vol. 30(8), pages 1619-1637.
  10. Mariam Camarero, . "The real exchange rate of the dollar for a panel of OECD countries: Balassa-Samuelson or distribution sector effect?," Working Papers on International Economics and Finance 06-04, FEDEA.
  11. Anton Muscatelli, V. & Spinelli, Franco & Trecroci, Carmine, 2007. "Macroeconomic shocks, structural change and real exchange rates: Evidence from historical data," Journal of International Money and Finance, Elsevier, Elsevier, vol. 26(8), pages 1403-1423, December.
  12. Maurice Obstfeld, 2009. "Time of Troubles: The Yen and Japan's Economy, 1985-2008," NBER Working Papers 14816, National Bureau of Economic Research, Inc.
  13. He, Qichun, 2010. "Expanding Varieties in the Nontraded Goods Sector and the Real Exchange Rate Depreciation," MPRA Paper 31309, University Library of Munich, Germany.

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