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Currency Wars: Who Gains from the Battle?

Author

Listed:
  • Phornchanok Cumperayot

    (Chulalongkorn University)

  • Roy Kouwenberg

    (Mahidol University)

Abstract

We study the growth effects of currency undervaluation when countries employ active exchange rate management policies or impose capital controls, using a panel dataset of 185 countries. Applying two-stage regressions, we find that changes in undervaluation driven by exchange rate management and capital control policies have no significant impact on economic growth. Undervaluation that leads to higher growth mainly stems from policies that lower government consumption, reduce inflation and increase domestic savings. However, these policies are good for growth by themselves, with only limited additional growth effects through increased currency undervaluation. In sum, we find no evidence that battling in the currency depreciation war significantly increases a country's growth rate.

Suggested Citation

  • Phornchanok Cumperayot & Roy Kouwenberg, 2016. "Currency Wars: Who Gains from the Battle?," PIER Discussion Papers 18., Puey Ungphakorn Institute for Economic Research, revised Feb 2016.
  • Handle: RePEc:pui:dpaper:18.
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Real exchange rate misalignment; Growth; Undervaluation.;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other

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