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Fear of Appreciation

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  • Eduardo Levy Yeyati and Federico Sturzenegger

Abstract

In recent years the term "fear of floating" has been used to describe exchange rate regimes that, while officially flexible, in practice intervene heavily to avoid sudden or large depreciations. However, the data reveals that in most cases (and increasingly so in the 2000s) intervention has been aimed at limiting appreciations rather than depreciations, often motivated by the neomercantilist view of a depreciated real exchange rate as protection for domestic industries. As a first step to address the broader question of whether this view delivers on its promise, we examine whether this “fear of appreciation” has a positive impact on growth performance in developing economies. We show that depreciated exchange rates appear to induce higher growth, but that the effect, rather than through import substitution or export booms as argued by the mercantilist view, works largely through the deepening of domestic savings and capital accumulation.

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Bibliographic Info

Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number fearapp.

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Length: 40 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:udt:wpbsdt:fearapp

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References

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  4. repec:fip:fedgsq:y:2005:i:mar10 is not listed on IDEAS
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Understanding the issue of Currency Wars
    by Amol Agrawal in Mostly Economics on 2010-11-16 12:19:40
  2. Réquiem para el modelo de sustitución de importaciones
    by ELY in Blog de Eduardo Levy Yeyati on 2011-02-25 23:20:00
  3. La Insoportable Levedad del RER
    by Generico in Economista Serial Crónico on 2010-04-07 11:18:00
  4. Falso trilema (para econs)
    by Javier Finkman in Exabruptos on 2010-05-14 09:24:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Arslan Razmi & Martin Rapetti & Peter Skott, 2011. "The Real Exchange Rate and Economic Development," UMASS Amherst Economics Working Papers 2011-08, University of Massachusetts Amherst, Department of Economics.
  2. Calderon, Cesar & Yeyati, Eduardo Levy, 2009. "Zooming in : from aggregate volatility to income distribution," Policy Research Working Paper Series 4895, The World Bank.
  3. Steiner, Andreas, 2013. "The accumulation of foreign exchange by central banks: Fear of capital mobility?," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 409-427.
  4. Couharde, Cécile & Sallenave, Audrey, 2013. "How do currency misalignments’ threshold affect economic growth?," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 106-120.
  5. Alexis Cruz-Rodriguez, 2013. "Choosing and Assessing Exchange Rate Regimes: a Survey of the Literature," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 28(2), pages 37-61, October.
  6. Aizenman, Joshua, 2011. "Hoarding international reserves versus a Pigovian tax-cum-subsidy scheme: Reflections on the deleveraging crisis of 2008-2009, and a cost benefit analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1502-1513, September.
  7. Marc Pourroy, 2013. "Inflation-Targeting and Foreign Exchange Interventions in Emerging Economies," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00881359, HAL.
  8. Grier, Kevin B. & Smallwood, Aaron D., 2013. "Exchange rate shocks and trade: A multivariate GARCH-M approach," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 282-305.
  9. Diallo, Ibrahima Amadou, 2011. "The effects of real exchange rate misalignment and real exchange volatility on exports," MPRA Paper 32387, University Library of Munich, Germany.
  10. George Tavlas & Harris Dellas & Alan Stockman, 2008. "The Classification and Perfomance of Alternative Exchange-Rate Systems," Working Papers 90, Bank of Greece.
  11. Berganza, Juan Carlos & Broto, Carmen, 2011. "Flexible inflation targets, forex interventions and exchange rate volatility in emerging countries," BOFIT Discussion Papers 9/2011, Bank of Finland, Institute for Economies in Transition.
  12. Erick Lahura & Marco Vega, 2013. "Asymmetric effects of FOREX intervention using intraday data: evidence from Peru," BIS Working Papers 430, Bank for International Settlements.

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