Real Exchange Rate Misalignments and Growth

Ofair Razin and Susan M. Collins

No 6174, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Real exchange rate (RER) misalignment is now a standard concept in international macroeconomic theory and policy. However, there is neither a consensus indicator of misalignment, nor an agreed upon methodology for constructing such an indicator. This paper constructs an indicator of RER misalignment for a large sample of developed and developing countries. This indicator is based on a well-structured but simple extension of an IS-LM model of an open economy. The paper then uses regression analysis to explore whether RER misalignments are related to country growth experiences. Interestingly the work finds that there are important non-linearities in the relationship. Only very high over-valuations" appear to be associated with slower economic growth, while moderate to high (but not very high) under-valuations appear to be associated with more rapid economic growth.

Date: 1997-09
Note: IFM
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Citations: View citations in EconPapers (149)

Published as Razin, Assaf and Efraim Sadka (eds.) International Economic Integration: Public Economics Perspectives. Cambridge: Cambridge University Press, 1999.

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