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Currency misalignments and growth: a new look using nonlinear panel data methods

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  • Sophie Béreau
  • Antonia L�pez Villavicencio
  • Valérie Mignon

Abstract

The aim of this article is to investigate the link between currency misalignments and economic growth. Relying on panel cointegration techniques, we calculate Real Exchange Rate (RER) misalignments as deviations of actual RERs from their equilibrium values for a set of advanced and emerging economies. Estimating Panel Smooth Transition Regression (PSTR) models, we show that RER misalignments have a differentiated impact on economic growth depending on their sign: whereas overvaluations negatively affect economic growth, RER undervaluations significantly enhance it. This result indicates that undervaluations may drive the exchange rate to a level that encourages exports and promotes growth.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 27 (September)
Pages: 3503-3511

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Handle: RePEc:taf:applec:44:y:2012:i:27:p:3503-3511

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References

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  1. Luiz Carlos Bresser-Pereira, 2002. "Brazil's Quasi-Stagnation and the Growth cum Foreign Savings Strategy," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 32(4), pages 76-102, January.
  2. De Gregorio, Jose, 1992. "Economic growth in Latin America," Journal of Development Economics, Elsevier, vol. 39(1), pages 59-84, July.
  3. Roberto FRENKEL, 2004. "Real exchange rate and employment in Argentina, Brazil, Chile and Mexico," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 19(223), pages 29-52.
  4. Sophie Béreau & Antonia Lopez Villavicencio & Valérie Mignon, 2008. "Nonlinear Adjustment of the Real Exchange Rate Towards its Equilibrium Value: a Panel Smooth Transition Error Correction Modelling," Working Papers 2008-23, CEPII research center.
  5. Eitrheim, Øyvind & Teräsvirta, Timo, 1995. "Testing the Adequacy of Smooth Transition Autoregressive Models," Working Paper Series in Economics and Finance 56, Stockholm School of Economics.
  6. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  7. Agnès Bénassy-Quéré & Sophie Béreau & Valérie Mignon, 2009. "Robust Estimations Of Equilibrium Exchange Rates Within The G20: A Panel Beer Approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(5), pages 608-633, November.
  8. Gilles Dufrénot & Valérie Mignon & Charalambos Tsangarides, 2009. "The Trade-Growth Nexus in the Developing Countries: a Quantile Regression Approach," Working Papers 2009-04, CEPII research center.
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Citations

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Cited by:
  1. Cristina Jude & Grégory Levieuge, 2014. "Growth Effect of FDI in Developing Economies: the Role of Institutional Quality," Working Papers halshs-01014404, HAL.
  2. Mbaye, Samba, 2012. "Currency Undervaluation and Growth: Is there a Productivity Channel?," MPRA Paper 44261, University Library of Munich, Germany.
  3. Wlasiuk, Juan Marcos, 2013. "The Mechanics of Real Undervaluation and Growth," MPRA Paper 56628, University Library of Munich, Germany.
  4. Blaise Gnimassoun & Valérie Mignon, 2014. "How macroeconomic imbalances interact? Evidence from a panel VAR analysis," EconomiX Working Papers 2014-5, University of Paris West - Nanterre la Défense, EconomiX.
  5. Martín Rapetti, 2013. "The Real Exchange Rate and Economic Growth: Some Observations on the Possible Channels," UMASS Amherst Economics Working Papers 2013-11, University of Massachusetts Amherst, Department of Economics.
  6. JUDE, Cristina & LEVIEUGE, Gregory, 2013. "Growth effect of FDI in developing economies: The role of institutional quality," MPRA Paper 49321, University Library of Munich, Germany.
  7. Samba MBAYE, 2012. "Real Exchange Rate Undervaluation and Growth: Is there a Total Factor Productivity Growth Channel?," Working Papers 201211, CERDI.
  8. repec:hal:wpaper:halshs-00667467 is not listed on IDEAS
  9. Carl Grekou, 2014. "Revisiting the nexus between currency misalignments and growth in the CFA Zone," EconomiX Working Papers 2014-4, University of Paris West - Nanterre la Défense, EconomiX.
  10. Wu, Po-Chin & Liu, Shiao-Yen & Pan, Sheng-Chieh, 2013. "Nonlinear bilateral trade balance-fundamentals nexus: A panel smooth transition regression approach," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 318-329.
  11. repec:hal:wpaper:halshs-00710139 is not listed on IDEAS
  12. Schröder, Marcel, 2013. "Should developing countries undervalue their currencies?," Journal of Development Economics, Elsevier, vol. 105(C), pages 140-151.
  13. Jinzhao Chen, 2012. "Real Exchange Rate and Economic Growth: Evidence from Chinese Provincial Data (1992 - 2008)," PSE Working Papers halshs-00667467, HAL.
  14. Jinzhao Chen & Thérèse Quang, 2012. "International Financial Integration and Economic Growth: New Evidence on Threshold Effects," EconomiX Working Papers 2012-6, University of Paris West - Nanterre la Défense, EconomiX.
  15. Nabil Aflouk & Jacques Mazier, 2013. "Exchange rate misalignments and economic growth: A threshold panel approach," Economics Bulletin, AccessEcon, vol. 33(2), pages 1333-1347.
  16. Antonia López-Villavicencio & Valérie Mignon, 2009. "On Equilibrium Exchange Rates: Is Emerging Asia Different?," Working Papers 2009-38, CEPII research center.

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