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Currency Wars: Who Gains from the Battle?

Listed author(s):
  • Phornchanok Cumperayot

    (Chulalongkorn University)

  • Roy Kouwenberg

    (Mahidol University)

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.

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File URL: http://www.pier.or.th/wp-content/uploads/2016/02/pier_dp_018.pdf
File Function: Published version, 2016
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Paper provided by Puey Ungphakorn Institute for Economic Research in its series PIER Discussion Papers with number 18..

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Length: 45 pages
Date of creation: Feb 2016
Date of revision: Feb 2016
Publication status: Published in PIER Discussion Paper Series
Handle: RePEc:pui:dpaper:18.
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