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Real Exchange Rate and Economic Growth: new empirical evidence

  • Fabrício Missio

    (UFMT)

  • Frederico Jayme Jr

    (Cedeplar-UFMG)

  • Gustavo Britto

    (Cedeplar-UFMG)

  • José Luis Oreiro

    (UNB)

The goal of this paper is to empirically analyse the relationship between the real exchange rate and the growth rate of output. Firstly, we calculate an index of real exchange rate undervaluation, following the relevant literature. Then, using unbalanced (balanced) panel data techniques, we estimate the effect of this index on the rate of output growth for a sample of 103 (63) countries over the 1978-2007 period. Afterwards, we investigate the existence of a nonlinear relationship (quadratic) between these variables, as well as the possibility of there being different patterns for different groups of countries. We employ various tests and econometric methods, including the technique of quantile regressions, to ensure the robustness of the results. The conclusions indicate that maintaining a competitive level for the real exchange rate has positive effects on the growth rate, especially for developing countries in Latin America. Moreover, this effect tends to be nonlinear, i.e., it is positive for moderate levels of undervaluation.

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Paper provided by Cedeplar, Universidade Federal de Minas Gerais in its series Textos para Discussão Cedeplar-UFMG with number 482.

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Length: 27 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:cdp:texdis:td482
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  7. David M. Drukker, 2003. "Testing for serial correlation in linear panel-data models," Stata Journal, StataCorp LP, vol. 3(2), pages 168-177, June.
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  12. Arslan Razmi & Martin Rapetti & Peter Skott, 2009. "The Real Exchange Rate as an Instrument of Development Policy," UMASS Amherst Economics Working Papers 2009-07, University of Massachusetts Amherst, Department of Economics.
  13. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  14. Paulo Gala & Gilberto Libânio, 2008. "Efeitos da apreciação cambial nos salários, lucros, consumo, investimento, poupança e produtividade: uma perspectiva de curto e longo prazo," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807032223270, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  15. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
  16. J.S.L. McCombie & Mark Roberts, 2002. "The Role of the Balance of Payments in Economic Growth," Chapters, in: The Economics of Demand-Led Growth, chapter 6 Edward Elgar.
  17. Alvaro Aguirre & César Calderón, 2005. "Real Exchange Rate Misalignments and Economic Performance," Working Papers Central Bank of Chile 316, Central Bank of Chile.
  18. Eliane Cristina de Araújo, 2009. "Nível do Câmbio e Crescimento Econômico: Teorias e Evidências para Países em Desenvolvimento e Emergentes - 1980 - 2007," Discussion Papers 1425, Instituto de Pesquisa Econômica Aplicada - IPEA.
  19. Blecker, Robert A, 1989. "International Competition, Income Distribution and Economic Growth," Cambridge Journal of Economics, Oxford University Press, vol. 13(3), pages 395-412, September.
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  21. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
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