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Real Exchange Rate Misalignments and Growth

  • Ofair Razin

    (Georgetown University)

  • Susan M. Collins

    (Georgetown University and The Brookings Institution)

Registered author(s):

    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.

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    Paper provided by EconWPA in its series International Finance with number 9707001.

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    Length: 31 pages
    Date of creation: 21 Jul 1997
    Date of revision:
    Handle: RePEc:wpa:wuwpif:9707001
    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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    1. Michael Gavin & Ricardo Hausmann & Leonardo Leiderman, 1995. "The Macroeconomics of Capital Flows to Latin America: Experience and Policy Issues," IDB Publications (Working Papers) 5821, Inter-American Development Bank.
    2. Peter B. Clark & Steven A. Symansky & Tamim Bayoumi & Mark P. Taylor, 1994. "Robustness of Equilibrium Exchange Rate Calculations to Alternative Assumptions and Methodologies," IMF Working Papers 94/17, International Monetary Fund.
    3. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
    4. John V. Leahy & Toni M. Whited, 1995. "The Effect of Uncertainty on Investment: Some Stylized Facts," NBER Working Papers 4986, National Bureau of Economic Research, Inc.
    5. Campa, Joe Manuel, 1993. "Entry by Foreign Firms in the United States under Exchange Rate Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 614-22, November.
    6. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, volume 1, number 5474, April.
    7. Ghura, Dhaneshwar & Grennes, Thomas J., 1993. "The real exchange rate and macroeconomic performance in Sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 42(1), pages 155-174, October.
    8. Susan M. Collins & Barry P. Bosworth, 1996. "Economic Growth in East Asia: Accumulation versus Assimilation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 135-204.
    9. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-94, June.
    10. Michael Gavin & Ricardo Hausmann & Leonardo Leiderman, 1995. "Macroeconomics of Capital Flows to Latin America: Experience and Policy Issues," Research Department Publications 4012, Inter-American Development Bank, Research Department.
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