TY - CEPII
A1 - Sophie Béreau
A1 - Antonia Lopez Villavicencio
A1 - Valérie Mignon
TI - Currency Misalignments and Growth: a New Look Using Nonlinear Panel Data Methods
IS - 2009-17
T3 - Working Papers
KW - GROWTH
KW - EXCHANGE RATE MISALIGNMENTS
KW - NONLINEARITY
KW - PSTR MODELS
N2 - The aim of this paper is to investigate the link between currency misalignments and economic growth. Relying on panel cointegration techniques, we calculate real exchange rate (RER) misalignments as deviations of actual RERs from their equilibrium values for a set of advanced and emerging economies. Estimating panel smooth transition regression models, we show that RER misalignments have a differentiated impact on economic growth depending on their sign: whereas overvaluations negatively affect economic growth, real exchange rate undervaluations significantly enhance it. This result indicates that undervaluations may drive the exchange rate to a level that encourages exports and promotes growth.
ER -