Currency misalignments and growth: a new look using nonlinear panel data methods

Sophie B鲥au, Antonia López Villavicencio and Valérie Mignon ()
Authors registered in the RePEc Author Service: Sophie Béreau ()

Applied Economics, 2012, vol. 44, issue 27, 3503-3511

Abstract: The aim of this article is to investigate the link between currency misalignments and economic growth. Relying on panel cointegration techniques, we calculate Real Exchange Rate (RER) misalignments as deviations of actual RERs from their equilibrium values for a set of advanced and emerging economies. Estimating Panel Smooth Transition Regression (PSTR) models, we show that RER misalignments have a differentiated impact on economic growth depending on their sign: whereas overvaluations negatively affect economic growth, RER undervaluations significantly enhance it. This result indicates that undervaluations may drive the exchange rate to a level that encourages exports and promotes growth.

Date: 2012
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Related works:
Working Paper: Currency Misalignments and Growth: A New Look using Nonlinear Panel Data Methods (2012)
Working Paper: Currency Misalignments and Growth: a New Look Using Nonlinear Panel Data Methods (2009)
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DOI: 10.1080/00036846.2011.577022

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