Real Exchange Rate Misalignments and Growth
Real exchange rate (RER) misalignment refers to a situation in which a country's actual RER deviates from some notion of an implicit "ideal" RER. An exchange rate is labeled "undervalued" when it is more depreciated than this ideal, and "overvalued" when it is more appreciated than this ideal. Such misalignments are widely believed to influence economic behavior. In particular, Overvaluation is expected to hinder economic growth while undervaluation is sometimes thought to provide an environment conducive to growth. But unless the "ideal" is explicitly specified, the concepts of RER misalignment remain subjective. The objectives of this paper are first to develop and construct explicit measures of RER misalignment, and second to explore systematically the relationships between misalignment and economic growth.
|Date of creation:||21 Jul 1997|
|Date of revision:|
|Note:||Type of Document - WordPerfect; prepared on IBM PC ; to print on HP; pages: 31 ; figures: included. The research presented in this paper is work that Ofair Razin completed for his doctoral dissertation. It was a pleasure to advise him in his doctoral work and to prepare this paper for publication, in his memory. This paper is forthcoming in Assaf Razin and Efraim Sadka (eds.) International Economic Integration: Public Economics Perspectives, Cambridge University Press.|
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