Revisiting real exchange rate misalignment and economic growth nexus: a Markov-switching approach

Hsiu-Hsin Ko

Applied Economics Letters, 2022, vol. 29, issue 21, 2002-2006

Abstract: In this study, we examine whether the impact of the real exchange rate (RER) misalignment on the growth is consistent when the economic condition of the country is different. We use a Markov-switching regime model to, respectively, explore whether there are asymmetric effects of RER misalignments on the economic growth of 10 Asian countries. We find that the impact of the RER misalignment on the growth is mixed and asymmetric depending on the economic status of the country. An RER undervaluation does not necessarily help economic growth, and an overvaluation does not necessarily hamper economic growth. When economic conditions are volatile, the effect of the RER misalignment on economic growth is insignificant. However, the RER misalignment is more likely to have an impact on the economic growth when the economy is in a tranquil state.

Date: 2022
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DOI: 10.1080/13504851.2021.1967857

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