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Managing real exchange rate for economic development:empirical evidences from developing countries

Lúcio Otávio Barbosa, Frederico Jayme Jr () and Fabrício Missio
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Lúcio Otávio Barbosa: Planning Department of Minas Gerais (SEPLAG-MG)
Fabrício Missio: Cedeplar-UFMG

No 563, Textos para Discussão Cedeplar-UFMG from Cedeplar, Universidade Federal de Minas Gerais

Abstract: This paper analyses macroeconomic policies capable of influencing the long-run real exchange rate (RER). In this vein, it identifies economic policy tools that can devalue RER, covering a theoretical issue neglected by the economic literature, which argues that competitive exchange rate enhances growth. After discussing the “Trilemma”, we identify those variables that could affect RER without constraining monetary policy or exchange rate regime choice. In what follows, we model the probability of achieving an undervalued (small or large) RER for a sample of 14 developing countries from 1980 to 2010 (30 years) by applying econometric techniques for discrete choice and censored data. Afterwards, we compare the results for Latin-American nations with Asian ones. They suggest that competitive exchange rate requires different approaches depending on the region. Moreover, Latin American countries need to take on additional policies so that interventions in the Foreign Exchange Market become effective.

Keywords: Competitive exchange rate; exchange rate management; exchange rate policy (search for similar items in EconPapers)
JEL-codes: F31 F40 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
Date: 2017-07
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