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Fear of Appreciation

Eduardo Levy-Yeyati and Federico Sturzenegger
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Eduardo Levy-Yeyati: World Bank and Universidad Torcuato Di Tella

Authors registered in the RePEc Author Service: Eduardo Levy Yeyati ()

Working Paper Series from Harvard University, John F. Kennedy School of Government

Abstract: In recent years the term "fear of floating" has been used to describe exchange rate regimes that, while officially flexible, in practice intervene heavily to avoid sudden or large depreciations. However, the data reveals that in most cases (and increasingly so in the 2000s) intervention has been aimed at limiting appreciations rather than depreciations, often motivated by the neo-mercantilist view of a depreciated real exchange rate as protection for domestic industries. As a first step to address the broader question of whether this view delivers on its promise, we examine whether this “fear of appreciation” has a positive impact on growth performance in developing economies. We show that depreciated exchange rates appear to induce higher growth, but that the effect, rather than through import substitution or export booms as argued by the mercantilist view, works largely through the deepening of domestic savings and capital accumulation.

JEL-codes: F31 (search for similar items in EconPapers)
Date: 2007-10
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Related works:
Journal Article: Fear of appreciation (2013) Downloads
Working Paper: Fear of Appreciation (2012) Downloads
Working Paper: Fear of Appreciation (2007) Downloads
Working Paper: Fear of appreciation (2007) Downloads
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