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Short- and long-term growth effects of exchange rate adjustment

  • Evžen Kočenda

    ()

    (CERGE-EI - Center for Economic Research and Graduate Education - Economics Institute)

  • Mathilde Maurel

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Gunther Schnabl

    ()

    (University of Leipzig - Institute for Economic Policy)

The European sovereign debt crisis revived the discussion concerning pros and cons of exchange rate adjustment in the face of asymmetric shocks. In the spirit of keynes, exit from the euro area is to regain rapidly international competitiveness. In the spirit of Schumpeter, exhange rate stability with structural reforms would be beneficial towards the long-run growth performance. Previous literature has estimated the average growth of countries with different degrees of exchange rate flexibility. We augment this literature by analyzing short-and long-term growth effects of exchange rate flexibility in a panel-cointegration framework for a sample of 60 countries clustered in five country groups. The estimations show that countries with a high degree of exchange rate stability exhibit a higher long-term growth performance. In line with Mundell (1961), we show that the degree of business cycle synchronization with the (potential) anchor country matters for the impact of exchange rate flexibility on growth.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00748599.

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Date of creation: Dec 2012
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Publication status: Published in Documents de travail du Centre d'Economie de la Sorbonne 2012.69R - Version révisée - ISSN : 1955.. 2012
Handle: RePEc:hal:cesptp:halshs-00748599
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00748599v2
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  1. Eichengreen, Barry, 2002. "Financial Crises and What to Do About Them," OUP Catalogue, Oxford University Press, number 9780199257447.
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  10. Gunther Schnabl, 2007. "Exchange Rate Volatility and Growth in Emerging Europe and East Asia," CESifo Working Paper Series 2023, CESifo Group Munich.
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