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Real Exchange Rate and Economic Growth: new empirical evidence

Author

Listed:
  • 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.

Suggested Citation

  • Fabrício Missio & Frederico Jayme Jr & Gustavo Britto & José Luis Oreiro, 2013. "Real Exchange Rate and Economic Growth: new empirical evidence," Textos para Discussão Cedeplar-UFMG 482, Cedeplar, Universidade Federal de Minas Gerais.
    • Handle: RePEc:cdp:texdis:td482
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    More about this item

    Keywords

    Real Exchange Rate; Nonlinearity and Growth.;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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