The Real Exchange Rate and Economic Growth: Revisiting the Case Using External Instruments

By M. Habib, E. Mileva, Livio Stracca. Social Science Research Network, 2017

187 citations recorded by the source corpus.

We investigate the impact of movements in the real exchange rate on economic growth based on five-year average data for a panel of over 150 countries in the post Bretton Woods period. Unlike previous literature, we use external instruments to deal with possible reverse causality from growth to the real exchange rate. Our country-specific instruments are (i) global capital flows interacted with individual countries’ financial openness and (ii) the growth rate of official reserves. We find that a real appreciation (depreciation) reduces (raises) significantly annual real GDP growth, more than in previous estimates in the literature. However, our results confirm this effect only for developing countries and for pegs.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/c6024865ffc66c93d42fbcc2c3c2cfc30a7af421

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In Economics and Econometrics

1. E. Cigu
2. E. Toader
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Citations in the corpus

• Transport Infrastructure Development, Public Performance and Long-Run Economic Growth: A Case Study for the Eu-28 Countries (2018, background): “(GDP_percapita) World Bank [95] Gross domestic product (GDP) per capita based on purchasing power parity (PPP) is the best proxy for economic growth, even if most of the studies use GDP at market prices (euro per capita), given the stationarity of these variables and the implication on viability of ”