European Parliament Library

The Real Exchange Rate and Growth Revisited :, The Washington Consensus Strikes Back?, Andrew Berg, Yanliang Miao

There is good reason and much evidence to suggest that the real exchange rate matters for economic growth, but why? The "Washington Consensus" (WC) view holds that real exchange rate misalignment implies macroeconomic imbalances that are themselves bad for growth. In contrast, Rodrik (2008) argues that undervaluation relative to purchasing power parity is good for growth because it promotes the otherwise inefficiently small tradable sector. Our main result is that WC and the Rodrik views of the role of misalignment in growth are observationally equivalent for the main growth regressions he reports. There is an identification problem: Determinants of misalignment are also likely to be independent drivers of growth, and these types of growth regressions are hard-pressed to disentangle the different channels. However, we confirm that not only are overvaluations bad but undervaluations are also good for growth, a result squarely consistent with the Rodrik story but one that requires some gymnastics from the WC viewpoint
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction-A Horse Race; II. Two Measures of Misalignment; A. The Rodrik Undervaluation Index; Figure 1a. Distribution of PPP-Based Misalignment; Table 1. The Exchange Rate Regression; B. The FEER Undervaluation Index; Figure 1b. Distribution of FEER-Based Misalignment; Figure 2. Plots of the Two Undervaluation Indices; III. Which Misalignment Definition Matters for Growth?; A. Two Growth Models; Table 2. Growth and Undervaluations-A Horse Race; B. A Horse Race Between PPP- and FEER-Based Concepts of Misalignment?
Literary Form
non fiction
"March 2010."
Physical Description
1 online resource (41 p.)
Specific Material Designation
Form Of Item

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