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Exchange Rate Undervaluation And Manufactured Exports: A Deliberate Strategy?

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  • Ridha Nouira
  • Patrick Plane
  • Khalid Sekkat

    ()
    (Université Libre de Bruxelles (U.L.B), Belgium)

Abstract

Recent literature suggests that a proactive strategy consisting of deliberate real exchange rate depreciation can promote exports diversification and growth. This paper is built on these recent developments and investigates whether four developing countries have adopted such a strategy. Data from Egypt, Jordan, Morocco and Tunisia are used to construct and compare the macroeconomic real effective exchange rate (REER), similar exchange rates at the sector level (SREER) and the macroeconomic Equilibrium Real Effective exchange rate (EREER). It shows that there are instances where the objective of diversifying exports through depreciation of exchange rate comes at the expense of further misalignment (REER departs from the EREER) and, then, monetary authorities are doomed to choose. The results show that Morocco and Tunisia are choosing the proactive exchange rate strategy while Egypt and Jordan are not. This fits with the observation that the former are doing much better than the latter in terms of exports diversification.

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Bibliographic Info

Paper provided by Economic Research Forum in its series Working Papers with number 510.

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Length: 31 pages
Date of creation: Mar 2010
Date of revision: Mar 2010
Publication status: Published by The Economic Research Forum (ERF)
Handle: RePEc:erg:wpaper:510

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