Real Exchange Rate and Economic Growth: new empirical evidence

Fabricio Missio, Frederico Jayme Jr, Gustavo Britto and José Luís Oreiro

No 482, Textos para Discussão Cedeplar-UFMG from Cedeplar, Universidade Federal de Minas Gerais

Abstract: The goal of this paper is to empirically analyse the relationship between the real exchange rate and the growth rate of output. Firstly, we calculate an index of real exchange rate undervaluation, following the relevant literature. Then, using unbalanced (balanced) panel data techniques, we estimate the effect of this index on the rate of output growth for a sample of 103 (63) countries over the 1978-2007 period. Afterwards, we investigate the existence of a nonlinear relationship (quadratic) between these variables, as well as the possibility of there being different patterns for different groups of countries. We employ various tests and econometric methods, including the technique of quantile regressions, to ensure the robustness of the results. The conclusions indicate that maintaining a competitive level for the real exchange rate has positive effects on the growth rate, especially for developing countries in Latin America. Moreover, this effect tends to be nonlinear, i.e., it is positive for moderate levels of undervaluation.

Keywords: Real Exchange Rate; Nonlinearity and Growth. (search for similar items in EconPapers)
JEL-codes: E12 F43 O19 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2013-06
New Economics Papers: this item is included in nep-dev, nep-fdg and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Real Exchange Rate and Economic Growth: New Empirical Evidence (2015)
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