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The Real Exchange Rate and Economic Growth: Some Observations on the Possible Channels

  • Martín Rapetti


    (University of Buenos Aires)

A recent body of empirical research has documented a strong association between the level and volatility of the RER and economic growth. This research has relied on a variety of econometric techniques applied to large cross-country data sets. Although the documented positive effects of both RER competitiveness and stability on growth appear to be robust, it is still unclear what the mechanisms driving these associations are. Several explanations have been proposed, but their theoretical examination and empirical validation is still in an infant stage. I analyze the mechanisms that have been proposed and evaluate them in light of the documented empirical evidence. My reading is that two of them adjust to the empirical findings best: the financial globalization channel and the tradable-led growth channel. I conclude that since these mechanisms are not mutually exclusive, both might have some explanatory power.

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Paper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2013-11.

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Date of creation: 2013
Date of revision:
Handle: RePEc:ums:papers:2013-11
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  7. Martín Rapetti & Peter Skott & Arslan Razmi, 2012. "The real exchange rate and economic growth: are developing countries different?," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(6), pages 735-753, April.
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