Bussière, Matthieu and Lopez, Claude and Tille, Cédric (2014): Do Real Exchange Rate Appreciations Matter for Growth?
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Abstract
While the impact of exchange rate changes on economic growth has long been an issue of key importance in international macroeconomics, it has received renewed attention in recent years, owing to weaker growth rates and the debate on “currency wars”. However, in spite of its prevalence in the policy debate, the connection between real exchange rates and growth remains an unsettled question in the academic literature. We fill this gap by providing an empirical assessment based on a broad sample of emerging and advanced economies. We assess the impact of appreciations, productivity booms and capital flow surges using a propensity-score matching approach to address causality issues. We show that appreciations associated with higher productivity have a larger impact on growth than appreciations associated with capital inflows. Furthermore, the appreciation per se tends to have a negative impact on growth. We provide a simple theoretical model that delivers the contrasted growth-appreciation pattern depending on the underlying shock. The model also implies adverse effects of shocks to international capital flows, so concerns about an appreciation are not inconsistent with concerns about a depreciation. The presence of an externality through firms’destruction leads to inefficient allocations. Nonetheless, addressing them does not require a dampening of exchange rate movements.
Item Type: | MPRA Paper |
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Original Title: | Do Real Exchange Rate Appreciations Matter for Growth? |
Language: | English |
Keywords: | exchange rate, currency crises, endaka, international trade, international capital flows, lending booms, small open economy macroeconomics |
Subjects: | F - International Economics > F1 - Trade > F10 - General F - International Economics > F3 - International Finance > F30 - General F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics |
Item ID: | 54892 |
Depositing User: | Claude Lopez |
Date Deposited: | 31 Mar 2014 15:16 |
Last Modified: | 27 Sep 2019 20:51 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/54892 |
Available Versions of this Item
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Currency Crises in Reverse: Do Large Real Exchange Rate Appreciations Matter for Growth? (deposited 29 Jan 2013 13:31)
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Currency Crises in Reverse: Do Large Real Exchange Rate Appreciations Matter for Growth? (deposited 07 Dec 2013 18:42)
- Do Real Exchange Rate Appreciations Matter for Growth? (deposited 31 Mar 2014 15:16) [Currently Displayed]
- Currency Crises in Reverse: Do Large Real Exchange Rate Appreciations Matter for Growth? (deposited 31 Jan 2013 17:25)
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Currency Crises in Reverse: Do Large Real Exchange Rate Appreciations Matter for Growth? (deposited 07 Dec 2013 18:42)