Short-Term and Long-Term Growth Effects of Exchange Rate Adjustment

Evžen Kočenda, Mathilde Maurel and Gunther Schnabl

No 4018, CESifo Working Paper Series from CESifo

Abstract: The European sovereign debt crisis revived the discussion concerning the pros and cons of exchange rate adjustment in the face of asymmetric shocks. Exit from the euro area is to regain rapidly international competitiveness. Exchange rate stability with structural reforms could be beneficial for long-run growth. We augment the literature by analyzing short- and long-term growth effects of exchange rate flexibility in a panel-cointegration framework. Countries with a high degree of exchange rate stability exhibit lower short-term and higher long-term growth. The degree of business cycle synchronization with the anchor country matters for the impact of exchange rate flexibility on growth.

Keywords: exchange rate adjustment; sterilization; European sovereign debt crisis (search for similar items in EconPapers)
JEL-codes: C54 E32 E42 F32 F33 N20 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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