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Real Exchange Rate, Foreign Trade And Real Output Growth: The Case Of Spain, 1970-2009

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  • HSING, Yu
  • GUISAN, M.C.

Abstract

We analyze the evolution of the exchange rate with Dollar, real output and foreign trade balance in Spain, during the period 1970-2009. We present the estimation of en econometric model that related output growth and real exchange rate with other variables. Applying the monetary policy reaction function and employing the dummy variable technique, this paper finds that real GDP and the expected real effective exchange rate (REER) exhibit a J-shaped relationship. Thus, recent appreciation of the euro, for the period 2001-2007, would work in favor of Spain, provided that economic policies support a positive evolution of industrial production, exports and other main variables. Other findings of this model are that a higher real stock price, a higher real euro interest rate, and a lower expected inflation rate would raise real output for Spain whereas deficit-financed government spending has a little negative impact on real output. We also analyze the effect of foreign trade balance of Spain on the evolution of the exchange rate and economic growth, having into account the important positive role of industrial production to guarantee economic development in this country. Finally we present some recommendations in order to get a fast recovery of Spain after the economic crisis of the period 2008-2010.

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Bibliographic Info

Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 11 (2011)
Issue (Month): 1 ()
Pages:

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Handle: RePEc:eaa:aeinde:v:11:y:2011:i:1_5

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Related research

Keywords: Monetary Policy Reaction Function; MPRF; Uncovered Interest Parity; UIP; expected real depreciation or appreciation; government deficit; world interest rate; expected inflation; Spanish output growth 1970-2009; Foreign Trade and Development; Real exchange rate Euro/Dollar; REER;

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  1. Mohsen Bahmani-Oskooee & Souphala Chomsisengphet & Magda Kandil, 2002. "Are devaluations contractionary in Asia?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 25(1), pages 69-82, January.
  2. Gylfason, Thorvaldur & Risager, Ole, 1984. "Does devaluation improve the current account?," European Economic Review, Elsevier, vol. 25(1), pages 37-64, June.
  3. Ramon Moreno, 1999. "Depreciation and recessions in East Asia," Economic Review, Federal Reserve Bank of San Francisco, pages 27-40.
  4. Steven B. Kamin & John H. Rogers, 1997. "Output and the real exchange rate in developing countries: an application to Mexico," International Finance Discussion Papers 580, Board of Governors of the Federal Reserve System (U.S.).
  5. Upadhyaya, Kamal P., 1999. "Currency devaluation, aggregate output, and the long run: an empirical study," Economics Letters, Elsevier, vol. 64(2), pages 197-202, August.
  6. M Bahmani-Oskooee & I Miteza, 2003. "Are Devaluations Expansionary or Contractionary? A survey article," Economic Issues Journal Articles, Economic Issues, vol. 8(2), pages 1-28, September.
  7. Mohsen Bahmani-Oskooee & Ali Kutan, 2008. "Are devaluations contractionary in emerging economies of Eastern Europe?," Economic Change and Restructuring, Springer, vol. 41(1), pages 61-74, March.
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