Exchange Rate Volatility and Productivity Growth: The Role of Financial Development

Philippe Aghion, Philippe Bacchetta (), Romain Rancière () and Kenneth S Rogoff

No 12117, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper offers empirical evidence that real exchange rate volatility can have a significant impact on long-term rate of productivity growth, but the effect depends critically on a country%u2019s level of financial development. For countries with relatively low levels of financial development, exchange rate volatility generally reduces growth, whereas for financially advanced countries, there is no significant effect. Our empirical analysis is based on an 83country data set spanning the years 1960-2000; our results appear robust to time window, alternative measures of financial development and exchange rate volatility, and outliers. We also offer a simple monetary growth model in which real exchange rate uncertainty exacerbates the negative investment effects of domestic credit market constraints. Our approach delivers results that are in striking contrast to the vast existing empirical exchange rate literature, which largely finds the effects of exchange rate volatility on real activity to be relatively small and insignificant.

New Economics Papers: this item is included in nep-bec, nep-fmk and nep-ifn
Date: 2006-05
Note: EFG IFM ME
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w12117.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Working Paper: Exchange Rate Volatility and Productivity Growth: The Role of Financial Development (2006)
Working Paper: Exchange Rate Volatility and Productivity Growth: The Role of Financial Development (2006)
Working Paper: Exchange Rate Volatility and Productivity Growth: The Role of Financial Development (2006)
Journal Article: Exchange rate volatility and productivity growth: The role of financial development (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:12117

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w12117
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().