Advanced Search
MyIDEAS: Login

Net Foreign Assets, Productivity and Real Exchange Rates in Constrained Economies

Contents:

Author Info

  • Dimitris K. Christopoulos

    () (Panteion University)

  • Karine Gente

    () (University of Aix-Marseilles)

  • Miguel A. Leon-Ledesma

    () (University of Kent)

Abstract

Empirical evidence suggests that real exchange rates (RER) behave differently in developed and developing countries. We develop an exogenous 2-sector growth model in which RER determination depends on the country's capacity to borrow from international capital markets. The country faces a constraint on capital inflows. With high domestic savings, the country converges to the world per capita income and RER only depends on productivity spread between sectors (Balassa-Samuelson effect). If the constraint is too tight and/or domestic savings too low, RER depends on both net foreign assets (transfer effect) and productivity. We then analyze the empirical implications of the model and find that, in accordance with the theory, RER is mainly driven by productivity and net foreign assets in constrained countries and exclusively by productivity in unconstrained countries.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://wwwdocs.fce.unsw.edu.au/economics/Research/WorkingPapers/2008_17.pdf
Download Restriction: no

Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2008-17.

as in new window
Length: 34 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:swe:wpaper:2008-17

Contact details of provider:
Postal: Australian School of Business Building, Sydney 2052
Phone: (+61)-2-9385-3380
Fax: +61)-2- 9313- 6337
Email:
Web page: http://www.economics.unsw.edu.au/
More information through EDIRC

Related research

Keywords: Real exchange rate; capital inflows constraint; overlapping generations;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Philip R. Lane & Gian-Maria Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004," IMF Working Papers 06/69, International Monetary Fund.
  2. Beine, Michel & Bismans, Francis & Docquier, Frederic & Laurent, Sebastien, 2001. "Life-cycle behaviour of US households: A nonlinear GMM estimation on pseudopanel data," Journal of Policy Modeling, Elsevier, vol. 23(7), pages 713-729, October.
  3. Philip R. Lane & Gian Maria Milesi-Ferretti, 2000. "The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates," Working Papers 062000, Hong Kong Institute for Monetary Research.
  4. Vahagn Galstyan, 2007. "Country Size and the Transfer Effect," The Institute for International Integration Studies Discussion Paper Series iiisdp204, IIIS.
  5. Chinn, Menzie D, 2000. "The Usual Suspects? Productivity and Demand Shocks and Asia-Pacific Real Exchange Rates," Review of International Economics, Wiley Blackwell, vol. 8(1), pages 20-43, February.
  6. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  7. Paul Bergin & Reuven Glick & Alan M. Taylor, 2004. "Productivity, Tradability, and the Long-Run Price Puzzle," NBER Working Papers 10569, National Bureau of Economic Research, Inc.
  8. Menzie D. Chinn, 1998. "Before the Fall: Were East Asian Currencies Overvalued?," NBER Working Papers 6491, National Bureau of Economic Research, Inc.
  9. Balázs Égert & László Halpern & Ronald MacDonald, 2006. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," Working Papers 106, Oesterreichische Nationalbank (Austrian Central Bank).
  10. A.K.M. Mahbub Morshed & Stephen Turnovsky, 2003. "Sectoral Adjustment Costs and Real Exchange Rate Dynamics in a Two-Sector Dependent Economy," Working Papers UWEC-2002-17-P, University of Washington, Department of Economics, revised Jan 2003.
  11. Menzie D. Chinn, 2005. "A Primer on Real Effective Exchange Rates: Determinants, Overvaluation, Trade Flows and Competitive Devaluation," NBER Working Papers 11521, National Bureau of Economic Research, Inc.
  12. Barry P. Bosworth & Susan M. Collins, 2003. "The Empirics of Growth: An Update," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 113-206.
  13. Karine Gente, 2006. "The Balassa-Samuelson Effect in a Developing Country," Review of Development Economics, Wiley Blackwell, vol. 10(4), pages 683-699, November.
  14. Maurice Obstfeld & Kenneth Rogoff, 1996. "The Intertemporal Approach to the Current Account," NBER Working Papers 4893, National Bureau of Economic Research, Inc.
  15. Lionel Halpern & Charles Wyplosz, 1996. "Equilibrium Exchange Rates in Transition Economies," IMF Working Papers 96/125, International Monetary Fund.
  16. Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad, 1996. "Relative Labour Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries," CEPR Discussion Papers 1464, C.E.P.R. Discussion Papers.
  17. Balázs Égert & Imed Drine & Kirsten Lommatzsch & Christophe Rault, 2002. "The Balassa-Samuelson effect in Central and Eastern Europe: Myth or reality?," William Davidson Institute Working Papers Series 483, William Davidson Institute at the University of Michigan.
  18. García Solanes, José & Torrejón-Flores, Fernando, 2008. "The Balassa-Samuelson Hypothesis in Developed Countries and Emerging Market Economies: Different Outcomes Explained," Economics Discussion Papers 2008-14, Kiel Institute for the World Economy.
  19. Takatoshi Ito & Peter Isard & Steven Symansky, 1997. "Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia," NBER Working Papers 5979, National Bureau of Economic Research, Inc.
  20. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  21. Lane, Philip R, 2001. "International Trade and Economic Convergence: The Credit Channel," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 221-40, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Mouhamadou Sy & Hamidreza Tabarraei, 2010. "Capital inflows and exchange rate in LDCs: The Dutch disease problem revisited," Working Papers halshs-00574955, HAL.
  2. Mouhamadou Sy & Hamidreza Tabarraei, 2010. "Capital inflows and exchange rate in LDCs: The Dutch disease problem revisited," PSE Working Papers halshs-00574955, HAL.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:swe:wpaper:2008-17

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guillaume Roger).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.