Endogenous productivity regime and the impact of a competitive real exchange rate on economic growth

Hugo Iasco-Pereira and Fabrício Missio

Chapter 7 in Central Banking, Monetary Policy, and Exchange Rates, 2026, pp 122-146 from Edward Elgar Publishing

Abstract: This chapter studies the influence of the real exchange rate on economic growth. To that end, a model of cumulative and circular causation is developed. The argument pursued is that the real exchange rate influences the profit rate of firms, affecting capital accumulation. The novelty of this article is to endogenize the parameters of the productivity regime regarding capital accumulation. By making the autonomous productivity growth and the magnitude of Verdoorn's coefficient endogenous, the real exchange rate influences labor productivity growth and the intensity of the Kaldor-Verdoorn mechanism. The model shows that the competitive real exchange rate exerts a positive impact on the economic growth of economies under profit-led regimes of demand and capital accumulation, provided by its positive effect on the growth rate of demand and labor productivity. The model also indicates that devaluation of the domestic currency in real terms can exert a positive (negative) impact on the economic growth of economies under a wage-led regime of demand and wage- (profit-)led capital accumulation regime.

Keywords: Central Banking; Monetary Policy; Real Exchange Rate; Productivity Regime; Cumulative and Circular Causation; Economic Growth (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035330041
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