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Currency Misalignments and Growth: a New Look Using Nonlinear Panel Data Methods

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  • Sophie Béreau
  • Antonia Lopez Villavicencio
  • Valérie Mignon

Abstract

The aim of this paper 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 models, we show that RER misalignments have a differentiated impact on economic growth depending on their sign: whereas overvaluations negatively affect economic growth, real exchange rate 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

Paper provided by CEPII research center in its series Working Papers with number 2009-17.

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Date of creation: Sep 2009
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Handle: RePEc:cii:cepidt:2009-17

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Keywords: GROWTH; EXCHANGE RATE MISALIGNMENTS; NONLINEARITY; PSTR MODELS;

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References

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  1. 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, Scottish Economic Society, vol. 56(5), pages 608-633, November.
  2. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  3. 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, CEPII research center 2008-23, CEPII research center.
  4. Eitrheim, Øyvind & Teräsvirta, Timo, 1995. "Testing the Adequacy of Smooth Transition Autoregressive Models," Working Paper Series in Economics and Finance, Stockholm School of Economics 56, Stockholm School of Economics.
  5. De Gregorio, Jose, 1992. "Economic growth in Latin America," Journal of Development Economics, Elsevier, Elsevier, vol. 39(1), pages 59-84, July.
  6. Gilles Dufrenot & Valerie Mignon & Charalambos Tsangarides, 2010. "The trade-growth nexus in the developing countries: a quantile regression approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 146(4), pages 731-761, December.
  7. 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., M.E. Sharpe, Inc., vol. 32(4), pages 76-102, January.
  8. Roberto FRENKEL, 2004. "Real exchange rate and employment in Argentina, Brazil, Chile and Mexico," Iktisat Isletme ve Finans, Bilgesel Yayincilik, Bilgesel Yayincilik, vol. 19(223), pages 29-52.
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Citations

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Cited by:
  1. Nabil Aflouk & Jacques Mazier, 2013. "Exchange rate misalignments and economic growth: A threshold panel approach," Economics Bulletin, AccessEcon, vol. 33(2), pages 1333-1347.
  2. Wlasiuk, Juan Marcos, 2013. "The Mechanics of Real Undervaluation and Growth," MPRA Paper 56628, University Library of Munich, Germany.
  3. Jinzhao Chen & Thérèse Quang, 2012. "International Financial Integration and Economic Growth: New Evidence on Threshold Effects," PSE Working Papers, HAL halshs-00710139, HAL.
  4. Cristina Jude & Grégory Levieuge, 2014. "Growth Effect of FDI in Developing Economies: the Role of Institutional Quality," Working Papers, HAL halshs-01014404, HAL.
  5. 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.
  6. repec:hal:wpaper:halshs-00667467 is not listed on IDEAS
  7. 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.
  8. 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.
  9. repec:hal:wpaper:halshs-00710139 is not listed on IDEAS
  10. Mbaye, Samba, 2012. "Currency Undervaluation and Growth: Is there a Productivity Channel?," MPRA Paper 44261, University Library of Munich, Germany.
  11. Samba MBAYE, 2012. "Real Exchange Rate Undervaluation and Growth: Is there a Total Factor Productivity Growth Channel?," Working Papers 201211, CERDI.
  12. 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, Elsevier, vol. 27(C), pages 318-329.
  13. Jinzhao Chen, 2012. "Real Exchange Rate and Economic Growth: Evidence from Chinese Provincial Data (1992 - 2008)," PSE Working Papers, HAL halshs-00667467, HAL.
  14. Antonia López-Villavicencio & Valérie Mignon, 2009. "On Equilibrium Exchange Rates: Is Emerging Asia Different?," Working Papers, CEPII research center 2009-38, CEPII research center.
  15. 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.
  16. 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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