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Real Exchange Rate and Economic Growth: new empirical evidence

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Author Info

  • Fabrício Missio

    (UFMT)

  • Frederico Jayme Jr

    (Cedeplar-UFMG)

  • Gustavo Britto

    (Cedeplar-UFMG)

  • José Luis Oreiro

    (UNB)

Abstract

The goal of this paper is to empirically analyse the relationship between the real exchange rate and the growth rate of output. Firstly, we calculate an index of real exchange rate undervaluation, following the relevant literature. Then, using unbalanced (balanced) panel data techniques, we estimate the effect of this index on the rate of output growth for a sample of 103 (63) countries over the 1978-2007 period. Afterwards, we investigate the existence of a nonlinear relationship (quadratic) between these variables, as well as the possibility of there being different patterns for different groups of countries. We employ various tests and econometric methods, including the technique of quantile regressions, to ensure the robustness of the results. The conclusions indicate that maintaining a competitive level for the real exchange rate has positive effects on the growth rate, especially for developing countries in Latin America. Moreover, this effect tends to be nonlinear, i.e., it is positive for moderate levels of undervaluation.

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Bibliographic Info

Paper provided by Cedeplar, Universidade Federal de Minas Gerais in its series Textos para Discussão Cedeplar-UFMG with number 482.

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Length: 27 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:cdp:texdis:td482

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Keywords: Real Exchange Rate; Nonlinearity and Growth.;

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References

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  2. Anthony Philip Thirlwall, 1979. "The Balance of Payments Constraint as an Explanation of International Growth Rate Differences," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 32(128), pages 45-53.
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  7. Alvaro Aguirre & César Calderón, 2005. "Real Exchange Rate Misalignments and Economic Performance," Working Papers Central Bank of Chile 316, Central Bank of Chile.
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  17. Fabrício Missio & José Luis Oreiro & Frederico G. Jayme Jr, 2010. "Câmbio, crescimento e heterogeneidade produtiva num modelo keynesiano-estruturalista," Textos para Discussão Cedeplar-UFMG td413, Cedeplar, Universidade Federal de Minas Gerais.
  18. Arslan Razmi & Martin Rapetti & Peter Skott, 2009. "The Real Exchange Rate as an Instrument of Development Policy," UMASS Amherst Economics Working Papers 2009-07, University of Massachusetts Amherst, Department of Economics.
  19. Paulo Gala & Gilberto Libânio, 2008. "Efeitos da apreciação cambial nos salários, lucros, consumo, investimento, poupança e produtividade: uma perspectiva de curto e longo prazo," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807032223270, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
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