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Real Exchange Rate Misalignments and Growth

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Author Info
Ofair Razin
Susan M. Collins
Abstract

Real exchange rate (RER) misalignment is now a standard concept in international macroeconomic theory and policy. However, there is neither a consensus indicator of misalignment, nor an agreed upon methodology for constructing such an indicator. This paper constructs an indicator of RER misalignment for a large sample of developed and developing countries. This indicator is based on a well-structured but simple extension of an IS-LM model of an open economy. The paper then uses regression analysis to explore whether RER misalignments are related to country growth experiences. Interestingly the work finds that there are important non-linearities in the relationship. Only very high over-valuations" appear to be associated with slower economic growth, while moderate to high (but not very high) under-valuations appear to be associated with more rapid economic growth.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6174.

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Date of creation: Sep 1997
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Handle: RePEc:nbr:nberwo:6174

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  1. Michael Gavin & Ricardo Hausmann & Leonardo Leiderman, 1995. "Macroeconomics of Capital Flows to Latin America: Experience and Policy Issues," RES Working Papers 4012, Inter-American Development Bank, Research Department. [Downloadable!]
  2. Tamim Bayoumi & Peter B. Clark & Steven A. Symansky & Mark P. Taylor, 1994. "Robustness of Equilibrium Exchange Rate Calculations to Alternative Assumptions and Methodologies," IMF Working Papers 94/17, International Monetary Fund.
  3. John V. Leahy & Toni M. Whited, 1995. "The Effect of Uncertainty on Investment: Some Stylized Facts," NBER Working Papers 4986, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Susan M. Collins & Barry P. Bosworth, 1996. "Economic Growth in East Asia: Accumulation versus Assimilation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-2), pages 135-204. [Downloadable!]
  6. repec:fth:inadeb:310 is not listed on IDEAS
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  1. Gabriel Porcile & Gilberto Tadeu Lima, 2006. "Real Exchange Rate And Elasticity Of Labor Supply In A Balance-Of-Payments-Constrained Macrodynamics," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 11, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  2. Urban, Dieter M., 2007. "Terms of Trade, Catch-up, and Home Market Effect: The Example of Japan," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. Patrick A. Imam & Camelia Minoiu, 2008. "Mauritius: A Competitiveness Assessment," IMF Working Papers 08/212, International Monetary Fund. [Downloadable!]
  4. Olimov, Ulugbek & Sirajiddinov, Nishanbay, 2008. "The Effects of the Real Exchange Rate Volatility and Misalignments on Foreign Trade Flows in Uzbekistan," Economics Discussion Papers 2008-29, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  5. P Mejía-Reyes & D R Osborn & M Sensier, 2004. "Modelling Real Exchange Rate Effects on Output Performance in Latin America," Centre for Growth and Business Cycle Research Discussion Paper Series 35, Economics, The Univeristy of Manchester. [Downloadable!]
  6. Chernookiy Valery, 2005. "Adjustment to the Asymmetric Shocks and Currency Unions: the Case of Belarus and Russia," EERC Working Paper Series 05-07e, EERC Research Network, Russia and CIS. [Downloadable!]
  7. Pereira, Luiz Carlos Bresser, 2009. "A tendência à sobreapreciação da taxa de câmbio," Textos para discussão 183, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil). [Downloadable!]
  8. Paulo Gala, 2005. "Exchange Rate Policies In Latin America And Asia, A Comparative Study," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 077, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  9. Weber, Sebastian & Wyplosz, Charles, 2009. "Exchange rates during the crisis," Policy Research Working Paper Series 5059, The World Bank. [Downloadable!]
  10. Frait, Jan & Komárek, Luboš, 2002. "Theoretical And Empirical Analysis Of The Debt-Adjusted Real Exchange Rate In Selected Transition Economies During 1994-2001," The Warwick Economics Research Paper Series (TWERPS) 646, University of Warwick, Department of Economics. [Downloadable!]
  11. Kevin Cowan & David Rappoport & Jorge Selaive, 2007. "High Frequency Dynamics of the Exchange Rate in Chile," Working Papers Central Bank of Chile 433, Central Bank of Chile. [Downloadable!]
  12. Ildiko Magyari, 2008. "Exploring the Correlation between Real Exchange Rate Misalignment and Economic Growth in the CEE Countries," Advances in Economic and Financial Research - DOFIN Working Paper Series 16, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB. [Downloadable!]
  13. Hiroyuki Hino & Atsushi Iimi, 2008. "Aid Effectiveness Revisited: Comparative Studies of Modalities of Aid to Asia and Africa," Discussion Paper Series 218, Research Institute for Economics & Business Administration, Kobe University. [Downloadable!]
  14. Frait, Jan & Komarek, Lubos & Meleck, Martin, 2006. "The Real Exchange Rate Misalignment in the Five Central European Countries," The Warwick Economics Research Paper Series (TWERPS) 739, University of Warwick, Department of Economics. [Downloadable!]
  15. Paulo Gala & Claudio R. Lucinda, 2006. "Exchange Rate Misalignment And Growth: Old And New Econometric Evidence," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 93, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
    Other versions:
  16. Bagella , Michele & Becchetti , Leonardo & Hasan , Iftekhar, 2004. "The anticipated and concurring effects of EMU: exchange rate volatility, institutions and growth," Research Discussion Papers 15/2004, Bank of Finland. [Downloadable!]
  17. Paulo Gala, 2007. "Real Exchange Rate Levels And Economic Development: Theoretical Analysis And Empirical Evidence," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 037, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  18. Frait, Jan & Komárek, Luboš, 2008. "The Debt-adjusted Real Exchange Rate for China," The Warwick Economics Research Paper Series (TWERPS) 850, University of Warwick, Department of Economics. [Downloadable!]
  19. Christine Richaud & AristomÈne Varoudakis & Marie-Ange VÉganzonÈs, 2003. "Real exchange rate and openness in emerging economies: Argentina in the long run," Applied Economics, Taylor and Francis Journals, vol. 35(3), pages 293-303, January. [Downloadable!] (restricted)
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