Real Exchange Rate and GDP Growth: A Regression Analysis Considering Multiple Economic Indicators

Zhewen Meng (), Ruichen Tang, Jieya Yang, Jiale Tan and Liyan Zhang
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Zhewen Meng: University of Bristol
Ruichen Tang: University of Toronto
Jieya Yang: Jinan University
Jiale Tan: Jinan University
Liyan Zhang: Jincheng College of Sichuan University

A chapter in Management Information Systems in a Digitalized AI World, 2025, pp 187-210 from Springer

Abstract: Abstract This paper examines the relationship between the real exchange rate and GDP growth in both developing and developed countries under the Balassa-Samuelson effect, incorporating various economic indicators. Based on Purchasing Power Parity Theory, the sensitivity of real exchange rate undervaluation to GDP fluctuation is analysed. This study employs panel regression analysis, stepwise regression, and predictive model to assess the impact of the exchange rate on economic growth. The results reveal a positive correlation between the exchange rate and GDP growth, particularly in developing countries, while also highlighting the significance of other factors such as consumption, investment, and trade openness. Additionally, a time series forecasting model is utilized to predict future GDP growth rate and exchange rate trend. The applicability of the model is validated using actual data from China and Britain, revealing that undervaluation can stimulate economic growth, especially during periods of high economic openness. The robustness of the model, including its goodness of fit and multicollinearity, is also discussed. Furthermore, this research suggests that the government should comprehensively regulate exchange rate policy, trade policy, and foreign investment policy to achieve a more flexible and integrated policy mix that promotes economic growth.

Keywords: Real exchange rate; GDP growth rate; Regression; Predictive model (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-981-96-6526-6_13

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DOI: 10.1007/978-981-96-6526-6_13

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