The real exchange rate and economic growth: revisiting the case using external instruments

Livio Stracca, Elitza Mileva () and Maurizio Michael Habib

No 1921, Working Paper Series from European Central Bank

Abstract: We investigate the impact of movements in the real exchange rate on economic growth based on five-year average data for a panel of over 150 countries in the post Bretton Woods period. Unlike previous literature, we use external instruments to deal with possible reverse causality from growth to the real exchange rate. Our country-specific instruments are (i) global capital flows interacted with individual countries' financial openness and (ii) the growth rate of official reserves. We ?find that a real appreciation (depreciation) reduces (raises) significantly annual real GDP growth, more than in previous estimates in the literature. However, our results confirm this effect only for developing countries and for pegs. JEL Classification: F31, F43

Keywords: economic growth; instrumental variables; Panel data; real exchange rate (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-opm
Note: 335958
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1921.en.pdf (application/pdf)

Related works:
Journal Article: The real exchange rate and economic growth: Revisiting the case using external instruments (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20161921

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().