Exchange Rate Misalignment, Capital Accumulation and Income Distribution Theory and Evidence from the Case of Brazil
AbstractThis article analyzes the relationship between economic growth, income distribution and real exchange rate within the neo-Kaleckian literature, through the construction of a nonlinear macrodynamic model for an open economy in which investment in fixed capital is assumed to be a quadratic function of the real exchange rate. The model demonstrates that the prevailing regime of accumulation in a given economy depends on the type of currency misalignment, so if the real exchange rate is overvalued, then the regime of accumulation will be profit-led, but if the exchange rate is undervalued, then the accumulation regime is wage-led. Subsequently, the adherence of the theoretical model to data is tested for Brazil in the period 1994/Q3-2008/Q4. The econometric results are consistent with the theoretical non-linear specification of the investment function used in the model, so that we can define the existence of a real exchange rate that maximizes the rate of capital accumulation for the Brazilian economy. From the estimate of this optimal rate we show that the real exchange rate is overvalued in 1994/Q3- 2001/Q1 and 2005/Q4-2008/Q4 and undervalued in the period 2001/Q2-2005/Q3. As a direct corollary of this result, it follows that the prevailing regime of accumulation in the Brazilian economy after the last quarter of 2005 is profit-led.
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Bibliographic InfoArticle provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.
Volume (Year): 60 (2013)
Issue (Month): 3 (May)
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Web page: http://www.panoeconomicus.rs/
Open economy macroeconomics; Income distribution and real exchange rate;
Find related papers by JEL classification:
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- F31 - International Economics - - International Finance - - - Foreign Exchange
- D3 - Microeconomics - - Distribution
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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