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Real Exchange Rate and Economic Growth: new empirical evidence

Author

Listed:
  • Fabrício Missio

    (UFMT)

  • Frederico Jayme Jr

    (Cedeplar-UFMG)

  • Gustavo Britto

    (Cedeplar-UFMG)

  • José Luis Oreiro

    (UNB)

Abstract

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.

Suggested Citation

  • Fabrício Missio & Frederico Jayme Jr & Gustavo Britto & José Luis Oreiro, 2013. "Real Exchange Rate and Economic Growth: new empirical evidence," Textos para Discussão Cedeplar-UFMG 482, Cedeplar, Universidade Federal de Minas Gerais.
  • Handle: RePEc:cdp:texdis:td482
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    Cited by:

    1. Luciano Ferreira Gabriel & Fabrício Missio, 2016. "Sistema Nacional De Inovação Em Um Modelo Com Restrição Externa," Anais do XLII Encontro Nacional de Economia [Proceedings of the 42ndd Brazilian Economics Meeting] 083, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    2. Porcile, Gabriel & Sartorello Spinola, Danilo, 2018. "Natural, effective and BOP-constrained rates of growth: Adjustment mechanisms and closure equations," MERIT Working Papers 003, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. repec:eco:journ1:2017-03-68 is not listed on IDEAS
    4. Raquel Ramos, 2017. "The Fragility of Emerging Currencies Since the 2000s: a Minskyan Analysis," CEPN Working Papers hal-01619118, HAL.
    5. Lúcio Otávio Seixas Barbosa & Frederico G. Jayme Jr & Fabrício J. Missio, 2017. "Managing real exchange rate for economic development :empirical evidences from developing countries," Textos para Discussão Cedeplar-UFMG 563, Cedeplar, Universidade Federal de Minas Gerais.
    6. repec:eee:streco:v:42:y:2017:i:c:p:67-75 is not listed on IDEAS

    More about this item

    Keywords

    Real Exchange Rate; Nonlinearity and Growth.;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian

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