Real Exchange Rate Misalignments and Growth: A New Look using Nonlinear Panel Data methods

Sophie Bereau, Valérie Mignon, Agnès Bénassy-Quéré

Research output: Contribution to journalArticle

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.
Original languageEnglish
JournalApplied Economics
Volume44
Issue number27
Publication statusPublished - 2012

Fingerprint Dive into the research topics of 'Real Exchange Rate Misalignments and Growth: A New Look using Nonlinear Panel Data methods'. Together they form a unique fingerprint.

  • Cite this