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A Panel Data Investigation of Real Exchange Rate Misalignment and Growth

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  • Ronald MacDonald
  • Flávio Vieira

Abstract

The paper investigates the role of real exchange rate misalignment on long-run growth for a set of ninety countries using time series data from 1980 to 2004. We first estimate a panel data model (using fixed and random effects) for the real exchange rate, with different model specifications, in order to produce estimates of the equilibrium real exchange rate and this is then used to construct measures of real exchange rate misalignment. We also provide an alternative set of estimates of real exchange rate misalignment using panel cointegration methods. The variables used in our real exchange rate models are: real per capita GDP; net foreign assets; terms of trade and government consumption. The results for the two-step System GMM panel growth models indicate that the coefficients for real exchange rate misalignment are positive for different model specification and samples, which means that a more depreciated (appreciated) real exchange rate helps (harms) long-run growth. The estimated coefficients are higher for developing and emerging countries.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3061.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3061

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Keywords: long-run economic growth; real exchange rate misalignment; panel data analysis and System GMM;

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References

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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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Citations

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Cited by:
  1. Pierdzioch, Christian & Rülke, Jan-Christoph & Stadtmann, Georg, 2012. "A note on forecasting emerging market exchange rates: Evidence of anti-herding," Discussion Papers 324, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
  2. 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.
  3. Neményi, Judit & Oblath, Gábor, 2012. "Az euró bevezetésének újragondolása
    [Rethinking Hungary s prospective adoption of the Euro]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 569-684.
  4. Martín Rapetti, 2013. "The Real Exchange Rate and Economic Growth: Some Observations on the Possible Channels," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2013-11, University of Massachusetts Amherst, Department of Economics.
  5. Marcel Schröder, 2013. "Should developing countries undervalue their currencies?," Departmental Working Papers, The Australian National University, Arndt-Corden Department of Economics 2013-12, The Australian National University, Arndt-Corden Department of Economics.
  6. n.a.m, Naseem & m.s, Hamizah, 2013. "Exchange Rate Misalignment and Economic Growth: Recent Evidence in Malaysia," MPRA Paper 52447, University Library of Munich, Germany.
  7. Virginia Di Nino & Barry Eichengreen & Massimo Sbracia, 2011. "Real Exchange Rates, Trade, and Growth: Italy 1861-2011," Quaderni di storia economica (Economic History Working Papers), Bank of Italy, Economic Research and International Relations Area 10, Bank of Italy, Economic Research and International Relations Area.
  8. Oblath, Gábor & Halpern, László, 2014. "A gazdagsági stagnálás "színe" és fonákja. Mivel jár együtt az exporttöbblet és az adósságcsökkenés?
    [The bright" and gloomy side of economic stagnation]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 757-800.
  9. Schröder, Marcel, 2013. "Should developing countries undervalue their currencies?," Journal of Development Economics, Elsevier, Elsevier, vol. 105(C), pages 140-151.

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