Short- and long-term growth effects of exchange rate adjustment
Evžen Kočenda,
Mathilde Maurel and
Gunther Schnabl
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Abstract:
The European sovereign debt crisis revived the discussion concerning pros and cons of exchange rate adjustment in the face of asymmetric shocks. In the spirit of keynes, exit from the euro area is to regain rapidly international competitiveness. In the spirit of Schumpeter, exhange rate stability with structural reforms would be beneficial towards the long-run growth performance. Previous literature has estimated the average growth of countries with different degrees of exchange rate flexibility. We augment this literature by analyzing short-and long-term growth effects of exchange rate flexibility in a panel-cointegration framework for a sample of 60 countries clustered in five country groups. The estimations show that countries with a high degree of exchange rate stability exhibit a higher long-term growth performance. In line with Mundell (1961), we show that the degree of business cycle synchronization with the (potential) anchor country matters for the impact of exchange rate flexibility on growth.
Keywords: Mundell; Schumpeter; Hayek; cointegration; theory of optimum currency areas; shock adjustment; crisis; Exchange rate regime (search for similar items in EconPapers)
Date: 2012-12
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00748599v2
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Published in 2012
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Related works:
Journal Article: Short- and Long-term Growth Effects of Exchange Rate Adjustment (2013) 
Working Paper: Short- and Long-term Growth Effects of Exchange Rate Adjustment (2013)
Working Paper: Short- and Long-term Growth Effects of Exchange Rate Adjustment (2013)
Working Paper: Short- and long-term growth effects of exchange rate adjustment (2012) 
Working Paper: Short- and Long-Term Growth Effects of Exchange Rate Adjustment (2012) 
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