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

Evžen Kočenda, Mathilde Maurel and Gunther Schnabl

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

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: Exchange rate regime; crisis shock adjustment; theory of optimum currency areas; Mundell; Schumpeter; Hayek; cointegration (search for similar items in EconPapers)
JEL-codes: C54 E32 E42 F32 F33 N20 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2012-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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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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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:12069

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