This working paper investigates the impact of real exchange rate movements on economic growth using instrumental variables to address reverse causality. The main findings are:
1) Real depreciation significantly raises annual real GDP growth, while real appreciation reduces growth, especially for developing countries and pegs. This effect is not significant for advanced countries and floats.
2) The effects of real exchange rate movements appear approximately symmetric between appreciations and depreciations.
3) The instrumental variables estimates find larger effects than previous studies, strengthening the conclusion that exchange rates matter more for growth in developing economies.
Impact of injection and withdrawal of money stock on economic growth in nigeriaAlexander Decker
This document summarizes a study that examines the impact of injecting and withdrawing money stock on economic growth in Nigeria from 1970 to 2008. It uses regression analysis to study the relationship between money supply (M2) and interest rates as indicators of money stock changes, and gross domestic product (GDP) as a measure of economic growth. The study finds that injecting money stock by increasing the money supply tends to reduce interest rates and increase investment, thereby stimulating economic growth. However, excessive money stock increases that are not matched by growth in real output can lead to inflation instead of higher growth.
- Monetary financing or "helicopter money" involves central banks directly increasing money supply by crediting funds to government or individual accounts, bypassing traditional monetary policy tools. It is seen as a potential next step for central banks struggling with low growth and inflation.
- The document provides a checklist for considering helicopter money, examining factors like economic conditions, central bank credibility and independence, balance sheet constraints, and risks of losing control over inflation.
- While helicopter money could boost nominal growth and inflation, current economic data does not warrant it for major economies. More importantly, the approach risks undermining central bank credibility and ability to manage inflation expectations.
Dynamics of inflation and financial development empirical evidence from ghanaAlexander Decker
This document summarizes a study that examines the dynamic link between inflation and financial development in Ghana from 1964-2012. The study uses various econometric techniques to analyze the relationship between inflation and two measures of financial development: M2/GDP and private credit/GDP. The study finds a dual negative relationship between inflation and financial development in the short-run, while finding a unidirectional negative effect of inflation on financial development in the long-run. Specifically, inflation had a stronger dampening effect on private credit/GDP than M2/GDP, and the negative impact of financial development on inflation came primarily from private credit/GDP. The study was motivated by mixed theoretical views on the relationship and inconclusive
11.impact of injection and withdrawal of money stock on economic growth in ni...Alexander Decker
This document discusses a research study on the impact of money stock injection and withdrawal on economic growth in Nigeria from 1970 to 2008. The study uses regression analysis to examine the relationship between money stock and GDP. It finds that injecting money stock into the economy tends to reduce interest rates and increase investment, thereby boosting economic growth. However, it also notes that withdrawing money stock reduces the money available in the economy. The document provides background on monetary policy and debates between Keynesian and monetarist views. It also reviews previous related literature and discusses how the Central Bank of Nigeria can inject and withdraw money from the economy through tools like reserve requirements and interest rates.
This document provides an overview and analysis of Mauritius' economic environment over recent years from the perspective of a quantitative hedge fund manager. It discusses key economic indicators such as GDP growth, unemployment, inflation, deficits, and debt levels. It analyzes factors influencing inflation, such as food and oil prices and currency exchange rates. Productivity and population growth are identified as the main drivers of economic growth. Money supply, interest rates, and their relationship to velocity of money and resource allocation are also examined. In summary, the document analyzes Mauritius' economic performance and identifies competitiveness and indebtedness as the main determinants of future growth.
Impact of injection and withdrawal of money stock on economic growth in nigeriaAlexander Decker
This document summarizes a study that examines the impact of injecting and withdrawing money stock on economic growth in Nigeria from 1970 to 2008. It uses regression analysis to study the relationship between money supply (M2) and interest rates as indicators of money stock changes, and gross domestic product (GDP) as a measure of economic growth. The study finds that injecting money stock by increasing the money supply tends to reduce interest rates and increase investment, thereby stimulating economic growth. However, excessive money stock increases that are not matched by growth in real output can lead to inflation instead of higher growth.
- Monetary financing or "helicopter money" involves central banks directly increasing money supply by crediting funds to government or individual accounts, bypassing traditional monetary policy tools. It is seen as a potential next step for central banks struggling with low growth and inflation.
- The document provides a checklist for considering helicopter money, examining factors like economic conditions, central bank credibility and independence, balance sheet constraints, and risks of losing control over inflation.
- While helicopter money could boost nominal growth and inflation, current economic data does not warrant it for major economies. More importantly, the approach risks undermining central bank credibility and ability to manage inflation expectations.
Dynamics of inflation and financial development empirical evidence from ghanaAlexander Decker
This document summarizes a study that examines the dynamic link between inflation and financial development in Ghana from 1964-2012. The study uses various econometric techniques to analyze the relationship between inflation and two measures of financial development: M2/GDP and private credit/GDP. The study finds a dual negative relationship between inflation and financial development in the short-run, while finding a unidirectional negative effect of inflation on financial development in the long-run. Specifically, inflation had a stronger dampening effect on private credit/GDP than M2/GDP, and the negative impact of financial development on inflation came primarily from private credit/GDP. The study was motivated by mixed theoretical views on the relationship and inconclusive
11.impact of injection and withdrawal of money stock on economic growth in ni...Alexander Decker
This document discusses a research study on the impact of money stock injection and withdrawal on economic growth in Nigeria from 1970 to 2008. The study uses regression analysis to examine the relationship between money stock and GDP. It finds that injecting money stock into the economy tends to reduce interest rates and increase investment, thereby boosting economic growth. However, it also notes that withdrawing money stock reduces the money available in the economy. The document provides background on monetary policy and debates between Keynesian and monetarist views. It also reviews previous related literature and discusses how the Central Bank of Nigeria can inject and withdraw money from the economy through tools like reserve requirements and interest rates.
This document provides an overview and analysis of Mauritius' economic environment over recent years from the perspective of a quantitative hedge fund manager. It discusses key economic indicators such as GDP growth, unemployment, inflation, deficits, and debt levels. It analyzes factors influencing inflation, such as food and oil prices and currency exchange rates. Productivity and population growth are identified as the main drivers of economic growth. Money supply, interest rates, and their relationship to velocity of money and resource allocation are also examined. In summary, the document analyzes Mauritius' economic performance and identifies competitiveness and indebtedness as the main determinants of future growth.
Does Misaligned Currency Affect Economic Growth? – Evidence from Croatia Nicha Tatsaneeyapan
The document examines the relationship between currency misalignment and economic growth in Croatia from 2001 to 2013. It estimates the fundamental equilibrium exchange rate of the Croatian kuna using techniques like cointegration and VAR models. The findings show the kuna was undervalued from 2000 to 2007 and overvalued from 2008 to 2013. For the whole sample period, currency misalignments Granger caused GDP growth, but no causality was found for the two sub-periods. The research also finds the misalignments over this period were relatively small.
1. The portfolio manager discusses the market performance in Q2 2014, with the Canadian equity markets outperforming other global regions.
2. He explains that central bank monetary policies, particularly from the US Federal Reserve and European Central Bank, have been a key driver for the stock market rally over the past few years by keeping interest rates low.
3. The portfolio manager reiterates his advice to investors to stick to their customized plans and not be deterred by short-term market fluctuations, as the plans are designed to navigate periods of volatility.
- Emerging markets have experienced weaker economic growth compared to developed markets in 2013.
- Emerging market equities have significantly underperformed developed market equities since 2010, with the underperformance accumulating prior to recent tapering talk.
- Within emerging markets, BRIC countries like Brazil, Russia, India, and China have particularly underperformed the broader emerging market universe.
The Soundness of Financial Institutions In The Fragile Five CountriesCSCJournals
In recent years, economic globalization and technological development have contributed to a substantial rise in the integration of financial markets. Research findings in this area have indicated that a financial shock in one market can easily be transmitted to other markets globally. Especially, recent experiences showed that financial markets of some developing economies may even be more vulnerable to financial shocks than the emerging markets. There are several reasons, such as current account deficits, instability of local currencies, weaker financial institutions, for this situation. Contrary to the popular perception, this may be due to the lack of knowledge and prejudices of international investors about some emerging markets. This study evaluates and compares the financial soundness of 18 countries selected on the basis of the “Fragile Five” countries. The soundness of the financial structures of these countries has been evaluated based on the soundness of their financial institutions. The findings indicate that the countries with the weakest performance in the selected period are not the “Fragile Five” countries when compared with the countries in the whole sample.
No bubble trouble; stocks are still reasonably priced. This credit cycle has unique characteristics that continue to make high-yield bonds attractive. Interest-rate volatility poses greater risk than higher rates themselves.
The document summarizes bond market activity in the second quarter of 2015. It notes that while headlines proclaimed a "bond crash" and "bond rout", bond losses were still small at around 3% given the total size of global bond markets. It discusses factors that pushed some European bond yields negative, including quantitative easing by the ECB. It also notes increased volatility in markets due to events like Greece's debt crisis and a stock market drop in China, but concludes that bonds are not "dead" and various central banks will continue supporting low rates.
1) Zimbabwe experienced hyperinflation from 1998-2008, with inflation reaching 66,200% by 2007, the second highest recorded rate in history.
2) The hyperinflation was caused by the central bank excessively printing money and lending it to state-owned enterprises and private entities, effectively hiding the large fiscal deficit.
3) Some groups, like those with connections to state enterprises, benefited from arbitraging the dual exchange rates, but most Zimbabweans suffered from the hyperinflation.
This document is a dissertation submitted by Martin Reilly in partial fulfillment of an MFin degree in international finance. The dissertation examines the impact of quantitative easing announcements by the US Federal Reserve on equity prices in the US. Specifically, it analyzes the stock price movements of 100 equities and three major indices in response to 7 announcements regarding the Federal Reserve's QE3 program between 2008-2014. The dissertation reviews previous literature on the topics of policy-rate guidance, interest rate effects, and large-scale asset purchase programs. It then outlines the methodology used, presents results showing the statistical significance of stock price movements on announcement days, and concludes that QE announcements had a measurable impact on equity prices.
The paper examines neoclassical measures to evaluate government policy in transition countries: 1) marginal factor prices and the return to capital, 2) growth rates and taxes, 3) inflation rates, and 4) debt/GDP ratios, related to international real business cycle and endogenous growth theory. It further postulates a way to consider the debt/equity position of the government, related to a risk-yield framework. This gives a potentially more useful indicator than the debt/GDP ratio alone. Empirically these measures are examined in an illustrative way for a set of Central European countries plus Germany and the US for comparison, for the period of 1990-1998, using an internally standardized data set from the on-line International Financial Statistics.
Authored by: Max Gillman
Published in 1999
The Impact of Monetary Policy on Economic Growth and Price Stability in Kenya...iosrjce
The government of Kenya’s economic blueprint dubbed ‘Kenya Vision 2030’ acknowledges the
importance of maintaining a stable macro-economic environment. Despite Kenya implementing monetary
policy aimed at achieving stable prices and fostering economic growth, the economy has been reporting low
economic growth and high rates of inflation. These implies there is still a point of disconnect between what
Central bank of Kenya Pursues and the outcome of the objectives. In this study, structural vector autoregresion
(SVAR) model is estimatedto trace the effects of monetary policy shocks on economic growth and prices in
Kenya. Three alternative monetary policy instruments were put into use i.e. broad money supply (M3), interbank
lending rate (ILR) and the real effective exchange rate (REER). The study found evidence that monetary policy
innovations carried out on the quantity-based nominal anchor (M3) has modest effects on economic growth and
prices with a very fast speed of adjustment. Innovations on the price-based nominal anchors (ILR and REER)
have relative and fleeting effects on real GDP. The study recommended that Central Bank of Kenya should
place more emphasis on the use of the quantity-based nominal anchor rather than the price-based nominal
anchor
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
After the fall of Bretton Woods System, exchange rates become the focus of researchers and politicians. When a floating exchange rate system was started researchers investigated the impact of exchange rate volatility on international trade but the development of derivative instruments changed the researchers focus from currency volatility towards the impact of currency appreciation or depreciation on international trade. The main objective of this research was to investigate the short run and long run relationship between Turkey’s merchandise trade deficit and real effective exchange rate. The monthly data was collected from Central Bank of Republic of Turkey from March 2005 to September 2017. Autoregressive distributed lag (ARDL) approach and Error correction model (ECM) was used for the analysis. The finding shows that the variables have long run relationship but it is not significant at 5% significance level. The short run model also shows the insignificant results. These findings have the following policy implication: Turkey cannot improve the merchandise trade deficit by devaluating its currency.
Western governments are hopelessly addicted to deficit financing while refusing to address looming funding issues - with apologies to the embarrassingly foolish Angela Merkel, politicians can no more successfully “battle” the markets than you and I can successfully “battle” gravity. Petrocapita is an investment trust built around the premise that demand for energy will continue to move prices higher over the long-term. Petrocapita was created to allow investors to add professionally managed oil & gas assets directly to their portfolios.
Signs of inflation will raise the stakes for the Fed’s policy communications. Favorable conditions for leveraged strategies could reverse quickly. Reasonable valuations and the Fed’s policy goals continue to support risk assets.
Abstract from MARCH 2012 fasanara 'fat tail risk hedging programs' FTRHPsFasanara Capital ltd
This document discusses portfolio hedging strategies, including security-specific hedging, macro overlay hedging, and Fat Tail Risk Hedging Programs. It provides examples of strategies to hedge various tail risks, such as short positions in Japanese equities and currency to hedge risks of a credit crunch or default scenario. Short positions in shipping companies and rates are discussed to hedge risks associated with a decline in China's commodity imports. Purchasing out of the money options on currencies like the Swiss Franc and Danish Krone are presented as ways to hedge against an EU break up scenario. Short positions in Japanese rates and long gold are discussed as hedges against an inflation scenario. Declining Chinese export growth is cited as
The Hitchhiker's Guide to Yellen's Speech
We spent all week waiting anxiously to see what Our Glorious Leader would say only to get a confused mash-up of central bank water-cooler conversation.
If you want to know what she really said - and, more importantly, didn't say - you might like to read this translation.
The document summarizes the outlook for markets in 2009. It believes the recession will persist through 2009 with a weak recovery. Government stimulus plans aim to boost spending but the effects may be delayed. The Federal Reserve has increased money supply but must remove excess cash to avoid inflation. Consumers are saving more due to debt and falling asset values, which may slow growth but support bond prices. Global trade and capital flows are also slowing. The outlook calls for a challenging year with opportunities in quality companies and bonds offering higher yields. Flexibility will be needed to respond to changing opportunities and risks.
Cushman & Wakefield's white paper on the Feds decision Matthew Marshall
The Federal Reserve raised interest rates for the first time in almost 10 years, citing a strengthening labor market and economic growth as reasons for the rate hike. While inflation remains below the 2% target, job growth has rebounded in recent months. The rate increase is largely symbolic and monetary policy will remain accommodative. Commercial real estate prices are not strongly correlated with interest rates and are more influenced by economic growth and job creation. Continued economic expansion is expected to support further increases in commercial real estate values and rents.
The document summarizes a research paper that examines the causal effect of foreign aid on economic growth. It uses a quasi-experimental research design exploiting the income threshold used by the International Development Association (IDA) to determine aid eligibility. The study finds that crossing the IDA income threshold from below causes a significant reduction in total aid received on average. Analyzing 35 countries that crossed the threshold between 1987 and 2010, the study finds that a 1 percentage point increase in aid as a share of national income leads to an approximate 0.35 percentage point increase in annual per capita GDP growth. This effect is larger than past studies and suggests foreign aid has a statistically and economically significant positive impact on growth.
This document reviews the literature on the impact of monetary policy on growth and employment in developing countries. It finds that monetary policy has limited impact on growth as money plays a small role in developing economies and much of inflation is imported. While monetary policy aims to control inflation, there is little evidence it directly impacts investment, technological change, or employment. The document argues growth does not guarantee development and examines whether growth improves living standards, creates formal jobs, or moves workers from low- to high-productivity sectors.
Does Misaligned Currency Affect Economic Growth? – Evidence from Croatia Nicha Tatsaneeyapan
The document examines the relationship between currency misalignment and economic growth in Croatia from 2001 to 2013. It estimates the fundamental equilibrium exchange rate of the Croatian kuna using techniques like cointegration and VAR models. The findings show the kuna was undervalued from 2000 to 2007 and overvalued from 2008 to 2013. For the whole sample period, currency misalignments Granger caused GDP growth, but no causality was found for the two sub-periods. The research also finds the misalignments over this period were relatively small.
1. The portfolio manager discusses the market performance in Q2 2014, with the Canadian equity markets outperforming other global regions.
2. He explains that central bank monetary policies, particularly from the US Federal Reserve and European Central Bank, have been a key driver for the stock market rally over the past few years by keeping interest rates low.
3. The portfolio manager reiterates his advice to investors to stick to their customized plans and not be deterred by short-term market fluctuations, as the plans are designed to navigate periods of volatility.
- Emerging markets have experienced weaker economic growth compared to developed markets in 2013.
- Emerging market equities have significantly underperformed developed market equities since 2010, with the underperformance accumulating prior to recent tapering talk.
- Within emerging markets, BRIC countries like Brazil, Russia, India, and China have particularly underperformed the broader emerging market universe.
The Soundness of Financial Institutions In The Fragile Five CountriesCSCJournals
In recent years, economic globalization and technological development have contributed to a substantial rise in the integration of financial markets. Research findings in this area have indicated that a financial shock in one market can easily be transmitted to other markets globally. Especially, recent experiences showed that financial markets of some developing economies may even be more vulnerable to financial shocks than the emerging markets. There are several reasons, such as current account deficits, instability of local currencies, weaker financial institutions, for this situation. Contrary to the popular perception, this may be due to the lack of knowledge and prejudices of international investors about some emerging markets. This study evaluates and compares the financial soundness of 18 countries selected on the basis of the “Fragile Five” countries. The soundness of the financial structures of these countries has been evaluated based on the soundness of their financial institutions. The findings indicate that the countries with the weakest performance in the selected period are not the “Fragile Five” countries when compared with the countries in the whole sample.
No bubble trouble; stocks are still reasonably priced. This credit cycle has unique characteristics that continue to make high-yield bonds attractive. Interest-rate volatility poses greater risk than higher rates themselves.
The document summarizes bond market activity in the second quarter of 2015. It notes that while headlines proclaimed a "bond crash" and "bond rout", bond losses were still small at around 3% given the total size of global bond markets. It discusses factors that pushed some European bond yields negative, including quantitative easing by the ECB. It also notes increased volatility in markets due to events like Greece's debt crisis and a stock market drop in China, but concludes that bonds are not "dead" and various central banks will continue supporting low rates.
1) Zimbabwe experienced hyperinflation from 1998-2008, with inflation reaching 66,200% by 2007, the second highest recorded rate in history.
2) The hyperinflation was caused by the central bank excessively printing money and lending it to state-owned enterprises and private entities, effectively hiding the large fiscal deficit.
3) Some groups, like those with connections to state enterprises, benefited from arbitraging the dual exchange rates, but most Zimbabweans suffered from the hyperinflation.
This document is a dissertation submitted by Martin Reilly in partial fulfillment of an MFin degree in international finance. The dissertation examines the impact of quantitative easing announcements by the US Federal Reserve on equity prices in the US. Specifically, it analyzes the stock price movements of 100 equities and three major indices in response to 7 announcements regarding the Federal Reserve's QE3 program between 2008-2014. The dissertation reviews previous literature on the topics of policy-rate guidance, interest rate effects, and large-scale asset purchase programs. It then outlines the methodology used, presents results showing the statistical significance of stock price movements on announcement days, and concludes that QE announcements had a measurable impact on equity prices.
The paper examines neoclassical measures to evaluate government policy in transition countries: 1) marginal factor prices and the return to capital, 2) growth rates and taxes, 3) inflation rates, and 4) debt/GDP ratios, related to international real business cycle and endogenous growth theory. It further postulates a way to consider the debt/equity position of the government, related to a risk-yield framework. This gives a potentially more useful indicator than the debt/GDP ratio alone. Empirically these measures are examined in an illustrative way for a set of Central European countries plus Germany and the US for comparison, for the period of 1990-1998, using an internally standardized data set from the on-line International Financial Statistics.
Authored by: Max Gillman
Published in 1999
The Impact of Monetary Policy on Economic Growth and Price Stability in Kenya...iosrjce
The government of Kenya’s economic blueprint dubbed ‘Kenya Vision 2030’ acknowledges the
importance of maintaining a stable macro-economic environment. Despite Kenya implementing monetary
policy aimed at achieving stable prices and fostering economic growth, the economy has been reporting low
economic growth and high rates of inflation. These implies there is still a point of disconnect between what
Central bank of Kenya Pursues and the outcome of the objectives. In this study, structural vector autoregresion
(SVAR) model is estimatedto trace the effects of monetary policy shocks on economic growth and prices in
Kenya. Three alternative monetary policy instruments were put into use i.e. broad money supply (M3), interbank
lending rate (ILR) and the real effective exchange rate (REER). The study found evidence that monetary policy
innovations carried out on the quantity-based nominal anchor (M3) has modest effects on economic growth and
prices with a very fast speed of adjustment. Innovations on the price-based nominal anchors (ILR and REER)
have relative and fleeting effects on real GDP. The study recommended that Central Bank of Kenya should
place more emphasis on the use of the quantity-based nominal anchor rather than the price-based nominal
anchor
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
After the fall of Bretton Woods System, exchange rates become the focus of researchers and politicians. When a floating exchange rate system was started researchers investigated the impact of exchange rate volatility on international trade but the development of derivative instruments changed the researchers focus from currency volatility towards the impact of currency appreciation or depreciation on international trade. The main objective of this research was to investigate the short run and long run relationship between Turkey’s merchandise trade deficit and real effective exchange rate. The monthly data was collected from Central Bank of Republic of Turkey from March 2005 to September 2017. Autoregressive distributed lag (ARDL) approach and Error correction model (ECM) was used for the analysis. The finding shows that the variables have long run relationship but it is not significant at 5% significance level. The short run model also shows the insignificant results. These findings have the following policy implication: Turkey cannot improve the merchandise trade deficit by devaluating its currency.
Western governments are hopelessly addicted to deficit financing while refusing to address looming funding issues - with apologies to the embarrassingly foolish Angela Merkel, politicians can no more successfully “battle” the markets than you and I can successfully “battle” gravity. Petrocapita is an investment trust built around the premise that demand for energy will continue to move prices higher over the long-term. Petrocapita was created to allow investors to add professionally managed oil & gas assets directly to their portfolios.
Signs of inflation will raise the stakes for the Fed’s policy communications. Favorable conditions for leveraged strategies could reverse quickly. Reasonable valuations and the Fed’s policy goals continue to support risk assets.
Abstract from MARCH 2012 fasanara 'fat tail risk hedging programs' FTRHPsFasanara Capital ltd
This document discusses portfolio hedging strategies, including security-specific hedging, macro overlay hedging, and Fat Tail Risk Hedging Programs. It provides examples of strategies to hedge various tail risks, such as short positions in Japanese equities and currency to hedge risks of a credit crunch or default scenario. Short positions in shipping companies and rates are discussed to hedge risks associated with a decline in China's commodity imports. Purchasing out of the money options on currencies like the Swiss Franc and Danish Krone are presented as ways to hedge against an EU break up scenario. Short positions in Japanese rates and long gold are discussed as hedges against an inflation scenario. Declining Chinese export growth is cited as
The Hitchhiker's Guide to Yellen's Speech
We spent all week waiting anxiously to see what Our Glorious Leader would say only to get a confused mash-up of central bank water-cooler conversation.
If you want to know what she really said - and, more importantly, didn't say - you might like to read this translation.
The document summarizes the outlook for markets in 2009. It believes the recession will persist through 2009 with a weak recovery. Government stimulus plans aim to boost spending but the effects may be delayed. The Federal Reserve has increased money supply but must remove excess cash to avoid inflation. Consumers are saving more due to debt and falling asset values, which may slow growth but support bond prices. Global trade and capital flows are also slowing. The outlook calls for a challenging year with opportunities in quality companies and bonds offering higher yields. Flexibility will be needed to respond to changing opportunities and risks.
Cushman & Wakefield's white paper on the Feds decision Matthew Marshall
The Federal Reserve raised interest rates for the first time in almost 10 years, citing a strengthening labor market and economic growth as reasons for the rate hike. While inflation remains below the 2% target, job growth has rebounded in recent months. The rate increase is largely symbolic and monetary policy will remain accommodative. Commercial real estate prices are not strongly correlated with interest rates and are more influenced by economic growth and job creation. Continued economic expansion is expected to support further increases in commercial real estate values and rents.
The document summarizes a research paper that examines the causal effect of foreign aid on economic growth. It uses a quasi-experimental research design exploiting the income threshold used by the International Development Association (IDA) to determine aid eligibility. The study finds that crossing the IDA income threshold from below causes a significant reduction in total aid received on average. Analyzing 35 countries that crossed the threshold between 1987 and 2010, the study finds that a 1 percentage point increase in aid as a share of national income leads to an approximate 0.35 percentage point increase in annual per capita GDP growth. This effect is larger than past studies and suggests foreign aid has a statistically and economically significant positive impact on growth.
This document reviews the literature on the impact of monetary policy on growth and employment in developing countries. It finds that monetary policy has limited impact on growth as money plays a small role in developing economies and much of inflation is imported. While monetary policy aims to control inflation, there is little evidence it directly impacts investment, technological change, or employment. The document argues growth does not guarantee development and examines whether growth improves living standards, creates formal jobs, or moves workers from low- to high-productivity sectors.
This document discusses a study examining the relationship between banking sector development and economic growth in Lebanon from 1992-2011. The study uses regression analysis to test whether greater banking sector development, as represented by factors like private credit levels and banking efficiency, leads to increased economic growth. Preliminary analysis includes a Granger causality test to determine the direction of the relationship between financial development and GDP growth. Key banking sector variables analyzed are private credit levels, interest rate spreads, banking assets, concentration levels, and deposit growth rates. The goal is to evaluate how Lebanon's banking-centered financial system impacts economic activity and development.
This document discusses macroeconomic indicators that can be used to compare emerging economies. It defines emerging economies and lists some key characteristics such as undergoing economic reforms and opening markets. The document outlines several important macroeconomic indicators that will be studied, including GDP, unemployment, inflation, interest rates, and their relationships. It presents the objectives of the study as finding countries' economic potential and comparing macroeconomic factors to identify opportunities for investment or business operations.
This document summarizes an economic report analyzing the relationship between economic growth and inequality in 73 countries from 1993-2013. Two regression models were used to examine the impact of various economic variables on the rate of economic growth. The first model found a positive relationship between internal direct investment and growth. The second model found positive relationships between gross capital formation and growth. Both models found negative relationships between the GINI index, government debt, and GDP per capita with economic growth. The analysis aims to better understand how inequality impacts economic growth.
Question 1Response 1Development inside and out effects t.docxaudeleypearl
Question 1:
Response 1:
Development inside and out effects the entire country's economy. It impacts the managing body, regardless the clearly irrelevant subtleties in the average person's dependably life. Both a conditions and clear deferred results of how the economy is getting along, swelling has the two its fans and spoilers. Distinctive envisions that particular degrees of swelling are helpful for a prospering economy, yet that progressively critical rates raise concerns. It can degrade the money basically and, at logically lamentable, has been a key part to subsidences.
Swelling, as referenced, is the rate a worth ascensions, and fundamentally how much the dollar is worth at a given moment concerning checking. The idea behind swelling being an impact for good in the economy is that a reasonable enough rate can nudge financial movement without debasing the money so much that it ends up being basically vain (Kohn, 2006).
Swelling can in like manner falter from asset for asset. Subordinate upon the season, the expense of gas could go up independently from with everything considered headway as it routinely does as summer moves close. In reality, there is even a term - focus improvement - for swelling that parts in everything except for sustenance and imperativeness (gas and oil), as these regions have separate factors that add to them. There are a wide degree of sorts of swelling, subordinate upon what remarkable is being viewed comparatively as what the development rate truly is by all accounts. For example, what happens if the swelling rate is well over the Fed's normal goal? At a higher rate, yet still in the single digits, that is known as walking swelling. It is seen as concerning yet sensible (Ball, 2006).
Swelling is generally depicted reliant on its rate and causes. By and large, Inflation happens in an economy when vitality for thing and experiences outmaneuvers the supply of yield. in this manner, clarifications behind Inflation have different sides, the intrigue side and supply side. The widely inclusive activity of hazard premiums in driving enlargement pay over the scope of advancing years is dependable with secured budgetary improvement and inside and out oblige cash related procedure events in the moved economies. The degree for further fitting budgetary enabling seen with money related stars seems to have declined amidst the enough low advance charges and gigantic monetary records of national banks (Bodie, 2016).
In relentless time, the correspondence of perils has wound up being constantly phenomenal, the general point of view has lit up, and money related conditions have engaged on net. With the work superstar proceeding to reinforce, and GDP improvement expected to keep up a vital good ways from back in the consequent quarter, it likely will be fitting soon to change the affiliation supports rate. Likewise, if the economy propels as shown by the SEP concentrate way, the affiliation supports rate will probably app ...
Macroeconomic stability in the DRC: highlighting the role of exchange rate an...IJRTEMJOURNAL
This study is part of a macroeconomic approach and seeks to identify the role of the rate of
economic growth and the exchange rate in controlling the macroeconomic framework. The approaches adopted
in this paper are part of Keynesian thinking on macroeconomic stability using the macroeconomic stability
index proposed by Burnside and Dollars (2004) and A. Amine (2005). Our results argue that economic growth
is causing macroeconomic stability and that the exchange rate is negatively and significantly accounting for
macroeconomic stability in the Democratic Republic of Congo.
Developing Trends - Central Banks - The Good the Bad and the UglyNikhil Mohan
This document discusses central banks and their performance. It summarizes that central banks aim to target inflation and maximize output. The US central bank has performed best among developed economies, while Israel's central bank has performed best among emerging markets from 2002-2011. Countries with interest rates lower than what the Taylor Rule prescribes have experienced little inflation cost and stronger growth. Inflation was a concern in early-mid 2011, but growth, or the lack thereof, will be a bigger concern for emerging markets going forward, suggesting interest rate cuts may be needed.
Does High Public Debt Consistently Stifle Economic Growth? A Critique a Reinh...Marco Garoffolo
Proprio in questi giorni abbiamo avuto una prova, decisiva, dell'utilità della non-cooperazione con la ragion di Stato. Ne ha riferito Paul Krugman, in un articolo che dichiara defunta, almeno nelle accademie, l'Austerità (Repubblica, 27 aprile). È un dogma cui l'Europa è appesa da anni: se non cresciamo economicamente, è solo perché gli Stati sono troppo indebitati. A sfatare l'assioma: tre economisti non ortodossi dell'università di Massachusetts-Amherst (i professori Michael Ash e Robert Pollin, lo studente di dottorato Thomas Herndon) che hanno scoperto errori di computer (l'errore Excel) commessi nel 2010 dai due economisti di Harvard, Kenneth Rogoff e Carmen Reinhart. Il dogma ("i Paesi che si indebitano oltre il 90 per cento del Pil non possono crescere") è in pezzi. http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf
Abstract
The exchange rates are at the heart of international economic relations and are an integral part of the everyday landscape of economic agents. The Tunisia like the other country is faced with the problem of determination of the rate of exchange that will allow him to achieve the major balances internal and external. The objective of this research is to explain the rate of exchange to the assistance of a number of explanatory variables to enable managers of the economic policy to appreciate in the time their contribution to economic activity. It is clear from the results of this research that have a positive influence on the equilibrium exchange rate while the external capital and the budgetary deficit have a significant negative impact on the equilibrium exchange rate.
Key words:
Exchange rate, budget deficit, exchange term, monetary mass
Will risks-derail-the-modest-recovery-oecd-interim-economic-outlook-march-2017OECD, Economics Department
Global GDP growth is projected to pick up modestly to around 3½ per cent in 2018, from just under 3% in 2016, boosted by fiscal initiatives in the major economies. The forecast is broadly unchanged since November 2016. Confidence has improved, but consumption, investment, trade and productivity are far from strong, with growth slow by past norms and higher inequality.
The impact of interest rates on the development of an emerging market empiric...Alexander Decker
This document summarizes a journal article about the impact of interest rates on the development of emerging markets, using Nigeria as an empirical case study. It acknowledges people who assisted with the research. The abstract indicates that interest rates are difficult to forecast and impact borrowing costs for businesses. While higher rates could encourage savings in the long-run, current high rates in Nigeria of 12% are negatively impacting growth. The literature review discusses how inflation can stimulate or deter human capital formation and how interest rates influence savings, investment, and financial intermediation. It recommends Nigeria adopt pragmatic policies to reduce lending rates to single digits to boost the economy.
The document argues that Net Domestic Product (NDP) should replace Gross Domestic Product (GDP) as the primary measure of economic growth for three reasons:
1) GDP includes depreciation (replacement of worn out equipment), which does not increase economic capacity or resources available for consumption, while NDP excludes depreciation.
2) Rapid growth in information and communication technologies has increased depreciation significantly relative to GDP in recent decades, widening the gap between GDP and NDP growth rates.
3) NDP is a better measure of economic welfare and potential for real wage and profit increases because it excludes replacement of worn out capital, which does not increase living standards.
The curious case of rising cost of falling inflationAshutosh Bhargava
The document discusses the risks posed by deflationary forces in the global economy due to below-trend growth and falling energy prices. It notes two main risks: 1) Low inflation hurts borrowers' ability to repay debts as nominal growth slows, increasing debt burdens as a percentage of GDP. This is seen in Greece and emerging markets. 2) Policymakers lose control of real interest rates and wages in a deflationary environment due to downward rigidities. The document then discusses how India has benefited from global deflation, with nominal GDP growth converging with real GDP growth, implying deflation. This convergence is having peculiar effects across sectors in India. The implications discussed are for investors, fiscal policymakers, and monetary policy
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
This document summarizes the Chief Economist's discussion of policy challenges facing the global economy in areas such as monetary policy, fiscal policy, and growth. It notes that while policymakers have successfully managed the crisis, challenges remain in areas like withdrawing monetary stimulus, reducing government debt, and rebalancing global growth. Overall economic growth is expected to be slow over the next few years. Coordinated, realistic policies across many levels will be needed to avoid future crises and promote sustainable growth.
12 the relationship between the interest rate and gdp levVivan17
The document analyzes the relationship between interest rates and GDP in the United States over 30 years using IMF statistics. Descriptive statistics show GDP ranged from $35.79 million to $242.35 billion with an average of $47.05 billion, while interest rates ranged from 0.02% to 23.5% with an average of 4.3479%. Pearson correlation found a positive relationship between interest rates and GDP of 0.523. Regression analysis found a negative relationship, with a 1% increase in interest rates associated with a 0.121 decrease in GDP. The analysis suggests GDP and interest rates are inversely related, so governments should control interest rates to help manage GDP.
Journal of Banking & Finance 44 (2014) 114–129Contents lists.docxdonnajames55
Journal of Banking & Finance 44 (2014) 114–129
Contents lists available at ScienceDirect
Journal of Banking & Finance
j o u r n a l h o m e p a g e : w w w . e l s e v i e r . c o m / l o c a t e / j b f
Macro-financial determinants of the great financial crisis: Implications
for financial regulation q
http://dx.doi.org/10.1016/j.jbankfin.2014.03.001
0378-4266/� 2014 Elsevier B.V. All rights reserved.
q We would like to thank the Editor, an anonymous referee, Luc Laeven, Ross
Levine, Marco Pagano, Andrea Sironi, Randy Stevenson, Gianfranco Torriero,
Giuseppe Zadra and seminar participants at IFABS Conference and ISTEIN seminar
for helpful comments. This paper’s findings, interpretations, and conclusions are
entirely those of the authors and do not necessarily represent the views of the
World Bank and the Italian Banking Association.
⇑ Corresponding author. Tel.: +39 02 58362725.
E-mail addresses: [email protected] (G. Caprio Jr.), [email protected]
(V. D’Apice), [email protected] (G. Ferri), [email protected]
(G.W. Puopolo).
Gerard Caprio Jr. a, Vincenzo D’Apice b,c, Giovanni Ferri d,e, Giovanni Walter Puopolo f,⇑
a Williams College, United States
b Economic Research Department of Italian Banking Association, Italy
c Istituto Einaudi (IstEin), Italy
d LUMSA University of Rome, Italy
e Center for Relationship Banking & Economics – CERBE, Italy
f Bocconi University, CSEF and P. Baffi Center, Italy
a r t i c l e i n f o
Article history:
Received 15 April 2012
Accepted 4 March 2014
Available online 29 March 2014
JEL classification:
G01
G15
G18
G21
Keywords:
Banking crisis
Government intervention
Regulation
a b s t r a c t
We provide a cross-country and cross-bank analysis of the financial determinants of the Great Financial
Crisis using data on 83 countries from the period 1998 to 2006. First, our cross-country results show that
the probability of suffering the crisis in 2008 was larger for countries having higher levels of credit
deposit ratio whereas it was lower for countries characterized by higher levels of: (i) net interest margin,
(ii) concentration in the banking sector, (iii) restrictions to bank activities, (iv) private monitoring. The
bank-level analysis reinforces these results and shows that the latter factors are also key determinants
across banks, thus explaining the probability of bank crisis. Our findings contribute to extend the analyt-
ical toolkit available for macro and micro-prudential regulation.
� 2014 Elsevier B.V. All rights reserved.
1. Introduction ment (BCBS, 2010a), has focused more on the stability of the finan-
As much as it was known that the Great Depression of the 1930s
was the acid test for any reputable macroeconomic theory, the out-
break of the Great Financial crisis in 2008 has shaken not only
financial institutions, but also long-held beliefs and theories on
how the regulation of the financial system should be structured,
with renewed emphasis on macro-prudential supervision and
reforming micro-pr.
CAPITAL MARKET DEVELOPMENT AND INFLATION IN NIGERIAAJHSSR Journal
ABSTRACT :This study examined the impact of inflation and capital market development in Nigeria. The
ultimate objective of the study is centered on an empirical investigation of inflation and its impact on the growth
of the Nigerian capital market, and also the trend of inflation and capital market development in Nigeria. In
order to achieve these objectives, the study used tables and graphs to examine the trend of inflation and capital
market development in Nigeria. Augmented Dickey Fuller unit root test was used to check the behavior of data,
and the ARDL bound test was used to check if variables are cointegrated. Post estimation test which includes
the serial correlation, heteroskedasticity and the histogram normality test was also conducted. Data were
collected from secondary sources, such as central bank of Nigeria statistical bulletin and the world development
indicator. The unit root test revealed that the financial sector, financial intermediaries and interest rate were
stationary at levels but exchange rate, inflation, government spending and trade openness became stationary
after the first difference. Empirical findings confirmed that there is a statistically significant long- and short-run
negative effect of inflation on capital market development. On the contrary, economic growth has a statistically
significant long- and short-run positive impact on capital market performance. In addition, results confirmed
that there is positive support of the previous financial sector policies on capital market performance in the
current period.
This document summarizes the literature on the impact of economic globalization on developing nations in regards to four outcomes: economic growth, wages, poverty, and inequality. The literature shows mixed results for each outcome. While some studies find correlations between globalization and growth, the relationship varies significantly between nations. Evidence on wages also shows uneven benefits, with some studies finding wage increases but others finding wage declines. The evidence on poverty is inconclusive. Studies of inequality note growing inequality within nations. The document highlights limitations of the current research and areas needing more study, such as accounting for factors like remittances and foreign aid, using smaller units of analysis, and gathering more data from the informal sector.
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إضغ بين إيديكم من أقوى الملازم التي صممتها
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💀💀💀💀💀💀💀💀💀💀
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1- مُترجمة ترجمة تُناسب جميع المستويات
2- تحتوي على 78 رسم توضيحي لكل كلمة موجودة بالملزمة (لكل كلمة !!!!)
#فهم_ماكو_درخ
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4- هُنالك بعض المعلومات تم توضيحها بشكل تفصيلي جداً (تُعتبر لدى الطالب أو الطالبة بإنها معلومات مُبهمة ومع ذلك تم توضيح هذهِ المعلومات المُبهمة بشكل تفصيلي جداً
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The real exchange rate and economic growth: revisiting the case using external instruments
1. Working Paper Series
The real exchange rate and
economic growth:
revisiting the case using external
instruments
Maurizio Michael Habib,
Elitza Mileva
and Livio Stracca
No 1921 / June 2016
Note: This Working Paper should not be reported as representing the views of the European Central Bank (ECB).
The views expressed are those of the authors and do not necessarily reflect those of the ECB.
2. Abstract
We investigate the impact of movements in the real exchange rate on economic
growth based on …ve-year average data for a panel of over 150 countries in the post
Bretton Woods period. Unlike previous literature, we use external instruments to
deal with possible reverse causality from growth to the real exchange rate. Our
country-speci…c instruments are (i) global capital ‡
ows interacted with individual
countries’…nancial openness and (ii) the growth rate of o¢ cial reserves. We …nd
that a real appreciation (depreciation) reduces (raises) signi…cantly annual real GDP
growth, more than in previous estimates in the literature. However, our results
con…rm this e¤ect only for developing countries and for pegs.
Keywords: Real exchange rate, economic growth, instrumental variables, panel
data.
JEL: F31, F43.
ECB Working Paper 1921, June 2016 1
3. Non-technical summary
This paper takes another look at the effect of the real exchange rate on economic
growth per capita from a medium term perspective, which is a question still
unsettled in the literature following previous work by Rodrik (2008) and others. Its
main contribution to the literature is in the identification strategy based on
instrumental variables (IV). We aim at identifying exogenous movements in the real
exchange rate, notably movements that are not driven by country-specific growth
shocks, such as productivity shocks. We estimate the effect of real exchange rate
movements on growth on a large panel of close to 150 countries over a sample of
five-year periods from 1970 to 2010.
The paper uncovers three main results:
• Our identification strategy finds a strong and statistically significant
positive (negative) effect of real depreciation (appreciation) on real per
capita growth over five-year average periods. The effect is visible in
developing countries and pegs, and is not significant or wrongly signed in
advanced countries and floats.
• The effects appear to be approximately symmetric between appreciations
and depreciations, although large depreciations appear to have a stronger
impact than large appreciations on average.
• The effects that we estimate through the IV approach are much larger than
previous comparable results in the literature.
Our overall conclusion is that the real exchange rate does matter for growth in
developing economies, but substantially less so in advanced ones, which confirms and
strengthens the conclusions of Rodrik (2008).
It should also be pointed out that our results suggest that using the exchange rate as
a policy lever could be beneficial only in the early stages of economic development,
while it becomes irrelevant in the long term as countries become richer. Moreover, it
is not evident what type of exchange rate regime a developing country should adopt
to maintain a relatively weak exchange rate in order to foster growth. By pegging
their currency, for example, countries may temporarily benefit from devaluations but
pay a price in terms of slower growth in case of appreciations of the base currency.
Our results are therefore more relevant to understand the reasons why governments
may pay attention to exchange rates, rather than a prescription for targeting
exchange rates in developing countries.
ECB Working Paper 1921, June 2016 2
4. 1 Introduction
Exchange rates and the choice of the exchange rate regime retain a centre stage in the post-
crisis environment especially for emerging economies (Klein and Shambaugh 2010; Rose
2011; Ghosh et al. 2014). In particular, there is a signi…cant divide between policy-makers
and economists regarding the impact of foreign exchange policies on growth. Whereas
laymen and politicians are often intimately convinced that a lower exchange rate will
spur growth; economists are generally sceptical that the relative price of two currencies
may be a fundamental driver of growth over the long-run. For most economists, the
exchange rate is an endogenous variable, whose contribution to growth may be di¢ cult
to disentangle. As a matter of fact, the question on whether engineering an exchange rate
undervaluation helps medium-term growth is still surprisingly unsettled in the literature.
Finding an answer to this question would have far-reaching implications for the design of
exchange rate regimes and the international monetary system more broadly.
The key question of this paper is whether maintaining a relatively weak (nominal and
real) exchange rate, such as through some form of sterilised intervention, or intervention
coupled with capital controls, or any policy which has the same e¤ect as a net subsidy to
the tradable sector, impacts on economic growth in a lasting manner. Unlike Ghosh et al.
(2014) and the previous literature therein quoted, we do not focus on crisis episodes in
particular, nor on …nancial stability and economic risks. The focus is narrowly on headline
per capita real GDP growth, because this is what ultimately national policy-makers are
mostly concerned about.
Our work is related to a body of literature trying to measure the link between exchange
rate undervaluation and growth (see Eichengreen 2008 for a review). In particular, our
benchmark is Rodrik (2008) who evaluates this nexus on a database of 188 countries and
11 …ve-year periods ranging from 1950 to 2004. Based on a measure of undervaluation
where real exchange rates are adjusted for the Balassa-Samuelson e¤ect, Rodrik …nds
that, at least for developing countries, an undervalued real exchange rate predicts stronger
growth. The motivation for this …nding is that tradable economic activities are special
in developing countries as tradables su¤er disproportionately from the institutional and
market failures that keep countries poor. In Rodrik’
s view, a sustained real depreciation
increases the relative pro…tability of investing in tradables and acts in a second-best
ECB Working Paper 1921, June 2016 3
5. fashion to alleviate the economic costs of these distortions.
One major concern surrounding this analysis is whether the real exchange rate may be
treated as an exogenous policy instrument. Country-speci…c shocks, such as productivity
shocks, may impact on the real exchange rate leading to reverse causality. The argument
is well known and is made forcefully by Woodford (2008) in his discussion of Rodrik
(2008). One argument in defense of OLS regressions of economic growth on the real
exchange rate is that the direction of the possible reverse causality, i.e. a positive link
between growth and real exchange rate appreciation, plays against …nding negative and
signi…cant coe¢ cients for the impact of exchange rates on growth. However, the direction
of the endogeneity bias is not really clear a priori. A positive correlation between growth
and real exchange rate appreciation may result from the Balassa Samuelson e¤ect, but
the opposite correlation holds after monetary policy and technology shocks in standard
open economy DSGE models.1
In addition, even if it could be safely argued that the
reverse causality plays against …nding a negative relationship between growth and the real
exchange rate, it may still be inappropriate to treat the variation in the real exchange
rate as exogenous (Woodford 2008; Nouira and Sekkat 2012). For example, the reverse
causality problem could a¤ect the size of the estimated coe¢ cients, even if the signs are
not a¤ected. Finally, the evidence on undervaluation and growth is unclear when one
considers the undervaluation episodes in isolation, as pointed out by Nouira and Sekkat
(2012), which suggests some degree of asymmetry.
The main purpose and contribution to the literature of our paper is to address the
problem of reverse causality between exchange rates and growth by applying instrumen-
tal variables estimates. In addition, we provide some robustness analysis of the results
by Rodrik (2008), including observations for the most recent period covering the global
…nancial crisis and limiting ourselves to the post Bretton Woods period.
In this paper we follow an instrumental variables approach to try and quantify the
e¤ect of exogenous real exchange rate ‡
uctuations on economic growth. One key variable
in our instrumentation strategy is capital ‡
ows. There is a signi…cant degree of evidence in
the literature that capital ‡
ows are (i) largely driven by global factors2
and (ii) associated
1
Intuitively, a positive technology shock at home should increase domestic output and at the same time
make production cheaper at home than abroad, leading to a real depreciation. This creates a positive
correlation between growth and depreciation, not appreciation.
2
Forbes and Warnock (2012) and Rey (2015) claim that global capital ‡
ows are mainly associated
ECB Working Paper 1921, June 2016 4
6. with real appreciation of the currencies of countries receiving (more) capital ‡
ows. We
argue that a rise in capital ‡
ows due to global (push) factors acts, as far as the real
exchange rate is concerned, as the mirror image of a policy of sterilised intervention since
its main e¤ect is a rise in the real exchange rate irrespective of local fundamentals, in
particular country speci…c growth shocks (e.g. country speci…c productivity shocks). As
a matter of fact, foreign exchange intervention aiming at maintaining a relatively weak
exchange rate is often a reaction to, real or perceived, undue appreciation due to excessive
capital in‡
ows and fear of the Dutch disease.3
Sa et al. (2013) look at the e¤ects, at a business cycle frequency, of capital in‡
ow
shocks in a panel VAR. They …nd these shocks to have a signi…cant and positive e¤ect on
real house prices, real credit to the private sector, and real residential investment. They
also …nd the shock, in line with our intuition, to appreciate the real exchange rate. For
this reason, in our growth regressions we control for country-speci…c net capital in‡
ows,
to ensure that our instrument does not in‡
uence economic growth through a direct e¤ect
via credit availability. Unlike Sa et al. (2013), however, our perspective is beyond the
business cycle frequency and therefore our results are not directly comparable to theirs.
Indeed, we look at low frequency, …ve-year average, data in (mainly) the post Bretton
Woods period, i.e. starting from the early 1970s. This more recent sample period (com-
pared with Rodrik 2008) is in our view more representative of the current con…guration
of the international monetary system (also taking into account the much lower capital
mobility before the 1970s). With this broad objective in mind, we regress real GDP
growth per capita on countries’real exchange rate, controlling for time and country …xed
e¤ects, and instrumenting the real exchange rate with a measure of global capital ‡
ows
interacted with a variable measuring countries’sensitivity to such ‡
ows: de jure …nancial
openness. We also use the growth rate of o¢ cial reserves (a good proxy for exchange rate
interventions during the 5-year period) as an additional instrument and as a robustness
check.
The main result of our study is that once we address the simultaneity problem with
with changes in global risk.
3
Recent foreign exchange interventions in Brazil and Switzerland have been motivated by the au-
thorities more or less in these terms. Fernandez Arias and Levy Yeyati (2012) also note that "one could
interpret leaning-against-appreciation policies during expansions as the countercyclical prudential response
to procyclical capital ‡ows and real exchange rates". Lartey (2008) …nds, however, that the Dutch disease
can be prevent by ‡
oating exchange rates and following a standard in‡
ation targeting strategy.
ECB Working Paper 1921, June 2016 5
7. our instrumentation approach we are able to identify a strong and statistically signi…-
cant negative e¤ect of real appreciation on real per capita growth over …ve-year average
periods. The e¤ect is stronger for developing economies and in countries pegging their
currency, while it is not signi…cant in advanced economies and those ‡
oating their cur-
rency (though especially for the latter it is di¢ cult to say because our instruments are
weaker for ‡
oating currencies). The e¤ects of the real exchange rate appear to be approx-
imately symmetric between appreciations and depreciations. Another noteworthy result
is that, quantitatively, the e¤ects that we estimate through the instrumental variables
(IV) approach are signi…cantly larger than previous comparable results in the literature
such as Rodrik (2008) and Aghion et al. (2009). We conclude that the exchange rate
does matter for economic growth in developing economies, which broadly con…rms and
strengthens the conclusions of Rodrik (2008).
The paper is organised as follows. Section 2 provides a short literature survey on
the nexus between exchange rates and growth, which can also help in understanding our
position in the literature. Section 3 describes the data, and Section 4 the empirical model.
Results are in Section 5. Section 6 concludes.
2 Literature on real exchange rates and economic
growth
Before moving to the empirical analysis it is useful to review the literature on the nexus
between real exchange rates and economic growth, both theoretical and empirical. Eichen-
green (2008) o¤ers an excellent review of the debate, including the role of exchange rate
regimes and exchange rate volatility.4
Here, therefore, we focus on more recent studies
and those closer to the obejective of this paper.
There is a relatively large body of literature suggesting a correlation between the real
exchange rate and GDP growth. As long as productivity is higher in the traded goods
sector, countries have an incentive to maintain the relative price of traded goods high
4
Indeed, our paper is also related to the literature on the role of the exchange rate regime for growth
(Levy-Yeyati and Sturzengger 2002; see Petreski 2009 for a survey). Recently, Rose (2014) emphasised
that the exchange rate regime was not an important determinant of growth during the global …nancial
crisis episode. Moreover, our paper is also related to the literature on the role of exchange rates as shock
absorbers or sources of shocks (Farrant and Peersman 2006).
ECB Working Paper 1921, June 2016 6
8. enough to make it attractive to shift resources into their production. In Aizenman and
Lee (2010), Benigno et al. (2015) and McLeod and Mileva (2011) there are learning by
doing e¤ects external to the individual …rm in the traded goods sector, therefore a weak
real exchange rate is needed to support the production of tradables. In these models, an
exchange rate undervaluation acts like a subsidy to the (more e¢ cient) tradables sector.
In Rodrik (2008), a weak real exchange rate compensates for institutional weaknesses
and market failures (e.g. knowledge spillovers, credit market imperfections, etc.) which
lead to underinvestment in the traded goods sector in developing countries. In Di Nino
at al. (2011), nominal depreciation has persistent real e¤ects on output growth in a
model with Bertrand competition and increasing returns to scale. A di¤erent channel
is proposed by Glüzmann et al. (2012) where a weak exchange rate leads to higher
saving and investment through lower labour costs and income re-distribution. By shifting
resources from consumers to …nancially-constrained …rms, real devaluation boosts savings
and investment.
Most empirical work tends to con…rm a positive relation between weak real exchange
rates and growth. Dollar (1992) shows that overvaluation harms growth, whereas Razin
and Collins (1997) and Aguirre and Calderon (2005) …nd that large over- and under-
valuation hurt growth, while modest undervaluation enhances growth. Similarly, Haus-
mann et al. (2005) demonstrate that rapid growth accelerations are often correlated with
real exchange rate depreciations. Rodrik (2008) …nds that the growth acceleration takes
place, on average, after ten years of steady increase in undervaluation in developing coun-
tries. Di Nino et al. (2011) also conclude that there is a positive relationship between
undervaluation and economic growth for a panel dataset covering the period 1861-2011. In
addition, the authors show that undervaluation supported growth by increasing exports,
especially from high-productivity sectors, in Italy in 1861-2011. Kappler et al. (2011)
identify 25 episodes of large nominal and real appreciations in a sample of 128 countries
of developing and advanced economies between 1960 and 2008. They …nd that the e¤ects
on output are limited. The negative e¤ect on the level of output is only 1 percent after
six years, and results are statistically insigni…cant. More at a business cycle frequency,
Farrant and Peersman (2006) show that pure real exchange rate shocks (i.e. separated
from the e¤ect of monetary policy) have a substantial contemporaneous impact on output
(exchange rate shocks are identi…ed through sign restrictions in a VAR setting). Finally,
ECB Working Paper 1921, June 2016 7
9. Glüzmann et al. (2012) …nd that undervaluation does not a¤ect the tradable sector, but
does lead to greater domestic savings and investment, as well as employment, in devel-
oping countries. On the other hand, Nouira and Sekkat (2012) …nd no evidence that
undervaluation promotes growth for developing countries, after excluding overvaluation
episodes.5
In the literature, the problem of reverse causality between the exchange rate and
growth is usually tackled with the use of GMM. To our knowledge, the only exception
is the work by Bussiere et al. (2015) who use a propensity score matching approach -
controlling whether real exchange rate appreciations are accompanied by a productiv-
ity boom or a surge in capital in‡
ows - to deal with the endogeneity of real exchange
rates. They …nd that while growth is boosted in countries experiencing an appreciation
together with a productivity boom, it is reduced when accompanied by a surge in capital
in‡
ows (though the combined e¤ect of appreciation and capital in‡
ows is statistically in-
signi…cant). While the main purpose of our paper and theirs is similar, there are several
important di¤erences between their work and ours. First, we consider the impact of ap-
preciation from a lower frequency perspective (…ve-year averages), while their focus is on
the annual frequency. Our paper therefore speaks to the literature on the role of exchange
rates for growth, while the focus of Bussiere et al. is more on the business cycle dimension.
Second, we use instrumental variables, while they use propensity score matching, which
are di¤erent methods with their own pros and cons.6
Third, we look at both exchange
rate appreciations and depreciations, while they only investigate appreciation episodes.
3 Data
Our sample goes from 1970 to 2010 (post Bretton Woods) divided into non-overlapping
5-year periods, where variables are mostly 5-year averages of annual data. We use a large
country coverage, as in Rodrik (2008), i.e. up to 150 countries.
5
A few papers focus on the link between real exchange rates and Total Factor Productivity (TFP)
growth. Fuentes et al. (2006) show that real undervaluation increased TFP growth in Chile in 1960-2005.
McLeod and Mileva (2011) …nd that real depreciation raises TFP growth in a panel of 58 developing
countries, but the relationship is non-linear: after a certain point, more depreciation leads to slower TFP
growth.
6
For example, the propensity score method assumes that all potential confounders are observed and
included, while instrumental variables do not make this assumption. On the other hand, instruments
may be weak or invalid.
ECB Working Paper 1921, June 2016 8
10. Main variables. Our main dependent variable is per capita GDP growth (PPP GDP
from Penn World Tables 7.1, henceforth PWT 7.1). For the real exchange rate, we focus
on the bilateral rate with the USD (PPP/XRAT from PWT 7.1) rather than the real
e¤ective exchange rate, due to data availability reasons. In the robustness analysis, we
also use the real (CPI de‡
ated) e¤ective exchange rate computed by the IMF. A higher
level of the exchange rate measures denotes an appreciation of the domestic currency in
real terms. In addition, we substitute the real bilateral exchange rate against the US dollar
with a simple measure of its overvaluation, measured as the log deviation of the actual
rate from equilibrium. As a proxy of the exchange rate fundamental value, similarly to
Rodrik (2008), we regress the real exchange rate against the per capita GDP to account
for the Balassa-Samuelson e¤ect, including country and time-…xed e¤ects.
Instruments. To instrument for the real exchange rate (see next section) we interact
world capital ‡
ows, the sum of total foreign liabilities from the IMF IFS with measures
of countries’ sensitivity to them, namely de jure …nancial opennness, proxied by the
Chinn-Ito (2006) index, which is in turn based on the IMF Annual Report on Exchange
Arrangements and Exchange Restrictions.7
We also use the growth rate of foreign ex-
change reserves, obtained from the IMF IFS statistics.
Control variables. We include a number of control variables for economic growth, while
we show only the statistically signi…cant ones, namely the level of per capita GDP at the
beginning of each …ve-year period (PWT 7.1), in‡
ation (WDI), the saving rate (WDI),
and trade openness de…ned as the sum of exports and imports over GDP (PWT 7.1).8
For
the short term interest rate, we use the main central bank policy rate (when available) or
short-term market (mainly interbank) interest rates. We also include country-speci…c net
capital in‡
ows as a share of GDP, from the IMF IFS statistics.9
Exchange rate regime. We use the exchange rate regime classi…cation of Reinhart
and Rogo¤ (2004) to distinguish between countries with a …xed exchange rate and those
7
We also used alternative measures of sensitivity to capital ‡
ows (de facto …nancial openness, and
…nancial development proxied by the private credit to GDP ratio) and obtained results that are consistent
with those reported. These additional results are not reported for brevity but are available from the
authors.
8
We included additional control variables, such as di¤erent measures of education and schooling or
government expenditure, but these were not statistically signi…cant.
9
Results using gross in‡
ows are very similar to those with net in‡
ows as controls, re‡
ecting the fact
that gross and net in‡
ows are highly positively correlated.
ECB Working Paper 1921, June 2016 9
11. ‡
oating. Fixed exchange rates include all countries/years in the categories 1 and 2 of the
coarse classi…cation of Reinhart and Rogo¤ (2004), i.e. those with a currency board, a peg
or a crawling band narrower than -/+2%. The remaining countries/years are considered
as ‡
oaters. Notably, according to this criterion, euro area countries are all classi…ed as
peggers after 1999.
Advanced economies. We distinguished advanced economies from the rest of the
sample using the IMF classi…cation of advanced economies, as reported in the 1970s when
our sample begins. The results are robust to the choice of alternative de…nitions.10
Net foreign currency exposure. We consider separately countries with a positive or
negative net foreign currency position, using the updated database of Benetrix et al.
(2015), although we do not report results for brevity.
Table 1 describes the sources of the data, and Table 2 reports summary statistics.
Note that the sample of available observations for the real bilateral exchange rate is twice
as large as for the real e¤ective exchange rate.
(Tables 1-2 here)
4 The empirical model
Our empirical model is speci…ed as follows:
yit = i + t + RERit + Rit + zit 1 + "it (1)
where y is real GDP growth per capita, RER is the log bilateral real exchange rate
against the USD, R is the nominal short term interest rate, and z is a vector of controls
(lagged GDP per capita, in‡
ation, saving ratio, trade openness, net capital in‡
ows) that
are common in the growth literature. We include the domestic interest rate to control for
the fact that domestic monetary policy may in‡
uence the real exchange rate and economic
growth. The coe¢ cient of interest in this regression is . To address the problem of reverse
causality, we instrument RER using instruments de…ned as follows,
xit = FLOWSt i;t 1
10
For instance, we also used a threshold of 6,000 international dollars as in Rodrik (2008) to distinguish
between advanced and developing economies or the mean of the per capita GDP in our sample, which
corresponds to around 9,500 international (PPP converted) dollars per person (at 2005 constant prices).
ECB Working Paper 1921, June 2016 10
12. where i;t 1 is a measure of the currency i’
s vulnerability to global capital ‡
ows
(FLOWSt), based on the country’
s de jure …nancial openness, lagged one period to mit-
igate the risk of reverse causality.11
We argue that gyrations in world capital ‡
ows should be largely independent of each
country’
s fundamentals, i.e. represent a push factor for most or all countries.12
They
should therefore represent a source of variation in real exchange rates in countries that
are more exposed to them, i.e the countries that are more …nancially open at time t. This
is the core of our identi…cation approach. One important caveat is that shifts in capital
‡
ows may a¤ect economic growth directly, for example by changing credit availability
conditions as emphasised for example in Sa et al. (2013). To the extent that this is
the case in practice, this would make the instrument invalid because it would in‡
uence
income growth directly. For this reason, in our regressions we also control for net capital
in‡
ows.13
In order to cross check the robustness of the results we also use another instrument,
namely the growth rate of foreign exchange reserves, a proxy for countries’ exchange
rate interventions. The relevance of this instrument is supported by a recent study by
Blanchard et al. (2015) who …nd that larger foreign exchange intervention leads to less
exchange rate appreciation in response to gross capital in‡
ows.
Note that per capita real GDP growth is expressed in percentages, and the real ex-
change rate is in logs. Therefore, the coe¢ cient of interest can be interpreted as the
e¤ect on average real output growth over a …ve year period resulting from a real appre-
ciation by 100% (a higher value of RER denotes a real appreciation). Also note that we
include RER in levels, given that it is clearly stationary at the frequency we use in this
paper.
We estimate the model (1) for the whole sample of countries and periods as well as
for di¤erent subsets of countries: advanced and developing countries; pegs and ‡
oats; and
exchange rate appreciations vs. depreciations.14
11
Our main instrument is therefore a so-called Bartik instrument; see Bartik (1991).
12
The United States may be an exception and for this reason it is excluded from the sample.
13
Note that in Sa et al. (2013) capital in‡
ow shocks are positive for growth. Here we argue for the
opposite channel: a capital in‡
ow shock appreciates the real exchange rate, and we want to test is this
appreciation reduces growth.
14
We also split countries according to whether they have negative or positive net foreign asset positions,
using the data of Lane and Shambaugh (2010) and Benetrix et al. (2015) (not reported for brevity). It can
ECB Working Paper 1921, June 2016 11
13. 5 Results
Before describing the results in detail, it is useful to give a summary of the main …nd-
ings. Our main result is that once we address reverse causality by applying instrumental
variables we uncover a strong and statistically signi…cant positive (negative) e¤ect of real
depreciation (appreciation) on real per capita growth over …ve-year average periods. The
e¤ect is stronger for developing countries (rather than advanced) and for pegs (rather
than ‡
oats). On the other hand, the e¤ects appear to be approximately symmetric be-
tween appreciations and depreciations. Finally, the e¤ects that we estimate through the
IV approach are much larger than previous comparable results in the literature. Hence,
our conclusion is that the exchange rate does matter for growth, especially in developing
economies, which broadly con…rms and strengthens the conclusions of Rodrik (2008).
5.1 OLS
Table 3 reports OLS estimates of equation (1) similar to Rodrik (2008), although the
sample period as well as the dependent variable are di¤erent. OLS results may not be
informative, in the light of what was earlier discussed about reverse causality, but they
may still be interesting as a benchmark. Overall, and in contrast with Rodrik (2008), we
…nd no statistically signi…cant impact of the real exchange rate on real per capita GDP
growth in our OLS regressions. We also …nd some interesting results beyond our main
question of interest. Net capital in‡
ows are strongly and positively associated with real
GDP growth; the coe¢ cient for initial GDP per capita level is statistically signi…cant and
negative; in‡
ation has a negative and statistically signi…cant impact on growth; and the
coe¢ cients for the saving ratio and trade openness are positive, all as expected.
(Table 3 here)
be expected that, ceteris paribus, countries with a positive net foreign currency position derive valuation
gains from a depreciation which may boost their growth rate, for example through wealth e¤ects or due
to less binding …nancing constraints. On the contrary, following a depreciation, countries with a negative
net foreign currency position experience valuation losses and have to face negative balance sheet e¤ects
which could hamper growth. While this is indeed what we …nd in this regression, i.e. the coe¢ cient
on the real exchange rate is much larger in countries with a positive net foreign currency position, the
e¤ect of the foreign currency position is surprisingly large and deserves further investigation. As far as
we are aware, this is the …rst time that the net foreign currency position is found to have a bearing on
the growth e¤ects of exchange rate movements, especially at low frequency.
ECB Working Paper 1921, June 2016 12
14. 5.2 First stage results
We report our …rst stage regression in Table 4, where the dependent variable is the real
bilateral exchange rate with the US dollar. Our instruments are signi…cant and with the
expected sign both individually and when included jointly. An expansion of world capital
‡
ows leads to an appreciation of the real exchange rate in more …nancially open countries,
while an accumulation of foreign exchange reserves depreciates the real exchange rate, in
line with our identi…cation story. We also …nd that the initial real per capita level of GDP
and net capital in‡
ows are positively associated with a more appreciated real exchange
rate.
(Table 4 here)
5.3 Baseline IV
Are the results of OLS regressions in Table 3 in‡
uenced by reverse causality? To test this
hypothesis, in Table 5 we report our baseline IV results, using the speci…cation that was
introduced in Section 4. For the baseline exercise we use both instruments together. In
this case, we …nd relatively strong evidence that, for the whole sample, the real exchange
rate negatively and signi…cantly a¤ects real per capita GDP growth. The size of the
coe¢ cient is large and economically signi…cant. A 10% real depreciation (appreciation)
leads to 1% higher (lower) real GDP growth per year in the baseline. The e¤ect is even
larger for non-advanced countries (in line with results in Rodrik 2008), where a 10%
depreciation (appreciation) leads to a rise (fall) in economic growth by almost 1.5%. The
e¤ect for advanced countries is also negative but smaller and not statistically signi…cant.
Note that we test that these coe¢ cients are signi…cant when taking into account the
possibility that instruments are weak, using an application of the conditional likelihood
ratio test of Moreira (2003). In all cases but two, the J test does not reject the null of
valid instruments at the 10 per cent con…dence level.
We also …nd that the signi…cant impact of the real exchange rate on economic growth
only prevails for pegs, but not for ‡
oats. Note that if depreciation fosters growth mainly
through a reallocation from non-tradables to tradables, then the exchange rate regime
should not matter, since this mechanism should be at play irrespective of the source
of the exchange rate movement. On the other hand, exchange rates may deviate from
ECB Working Paper 1921, June 2016 13
15. fundamentals more in pegs than in ‡
oats; notably pegs may entail the possibility of being
locked into an overvalued level that hampers growth. It is therefore not implausible that
the e¤ect of the real exchange rate on growth is stronger in pegs, at least because we
can better observe such e¤ects. Importantly, however, our evidence is stronger for pegs
probably just because we have far more pegs than ‡
oats in our sample (indeed most
smaller countries peg their currency) and our instruments are signi…cantly weaker for
‡
oats.15
Therefore, our evidence on pegs vs. ‡
oats should be interpreted with caution.
Finally, note that our results are robust to using the real e¤ective exchange rate as mea-
sured by the IMF (column (6)) and a proxy for the real exchange rate overvaluation, based
on a simple estimate of the equilibrium value that accounts for the Balassa-Samuelson
e¤ect as also done by Rodrik (2008) (column (7)). Results for other variables included in
the regression are very similar to the OLS estimates, as expected.
(Table 5 here)
5.4 Robustness
Table 6 contains a robustness analysis of the baseline results according to whether coun-
tries are advanced or developing, using di¤erent classi…cation methods. Irrespective of the
de…nition, we …nd that the e¤ects are stronger and more signi…cant in developing coun-
tries, and in particular in developing countries which also peg, in line with Rodrik (2008).
This may suggest that the e¤ect of real exchange rate appreciation or depreciation may
re‡
ect the in‡
uence of low productivity growth in the non-tradable sector due to poor
institutions, which is more likely to prevail in developing countries.
Further robustness analysis is included in Table 7, which brings additional insights. In
columns (2)-(3), we use only one instrument at the time in exactly identi…ed regressions.
The results are very much in line with the baseline in column (1). Finally, in the last
column of the table we test whether our results are driven to a large extent by the global
15
An additional caveat is that any exchange rate classi…cation regime is subject to a signi…cant mea-
surement error (Rose 2011). We also run our baseline regression for pegs using only one instrument at the
time (not reported for brevity). This is done in order to check if the growth impact of the real exchange
rate growth rate is stronger when the growth in foreign reserves is used as an instrument, i.e. when
the real exchange rate movement is the result of deliberate policy action. We …nd, however, no major
di¤erence in results depending on the instrument used; in fact the growth impact is larger when using
the other instrument.
ECB Working Paper 1921, June 2016 14
16. …nancial crisis, i.e. the …ve-year period between 2006 and 2010. When excluding this
observation we …nd that the coe¢ cient remains negative and signi…cant, but its size is
somewhat reduced compared with the baseline.
In Table 8 we focus on the di¤erence between appreciations and depreciations, i.e.
on the possible asymmetry of the relationship. There does not seem to be a signi…cant
di¤erence between appreciations and depreciations, though they are borderline statisti-
cally signi…cant when included individually and the e¤ect of depreciations is somewhat
larger. It is also interesting that the e¤ect seems to be stronger for depreciations in peg-
ging economies rather than appreciations in countries pegging their currency, although
in this case results are not statistically signi…cant. In columns (5) and (6) we exclude
large depreciations (currency crises) and large appreciations, by trimming the left or the
right tail at the 5th percentile of the distribution of real exchange rate log-changes. The
exclusion of large depreciations leads to a small reduction in the size (in absolute terms)
of the coe¢ cient for the real exchange rate, which instead increases when excluding large
appreciations. This suggests that large depreciations are more important than large ap-
preciations for growth. Importantly, our baseline result regarding the impact of the real
exchange rate on growth is not driven by outliers, as we show in column (7) where we
exclude both large appreciations and large depreciations.
In Table 9 we use two-step system GMM estimates with small sample correction, where
the real exchange rate is instrumented, in the …rst di¤erences equation, with its second
lag level. We …nd results that are in line with the baseline results qualitatively, but point
to a smaller e¤ect of the real exchange rate, around one third of the baseline estimate.
Moreover, in the case of advanced economies, there is a positive relationship between the
real exchange rate and growth. The GMM results of Table 9 are close to estimates in
previous papers, namely Rodrik (2008) and Aghion et al. (2009). It is evident that our IV
estimates point to a much larger e¤ect of the real exchange rate on growth than estimated
via GMM regressions (see Table 10). This suggests that lagged explanatory variables may
not necessarily be good instruments to deal with reverse causality. Notably, Reed (2015)
and Bellemare et al. (2015) show that lag identi…cation depends on the assumption that
the unobserved confounding variable is not serially correlated but the lagged endogenous
variable is, which is unlikely.
It is plausible that our higher estimates relative to the GMM results are due to the
ECB Working Paper 1921, June 2016 15
17. sharper identi…cation owing to the use of exogenous instruments. Our instrumentation
strategy can also be criticized –for example in the cases in which the …rst stage F statistic
points to weak instruments. However, for each regression we have reported tests showing
if the coe¢ cient on the endogenous real exchange rate is signi…cant in the presence of
weak instruments.
(Tables 6-10 here)
6 Conclusions
In this paper we take another look at the e¤ect of the real exchange rate on economic
growth per capita from a medium term perspective, an issue which is still unsettled in
the literature. Our main contribution to the literature is in the identi…cation strategy
based on instrumental variables. We aim at identifying exogenous movements in the real
exchange rate, notably movements that are not driven by country-speci…c growth shocks
(for example, productivity shocks). We estimate a large panel of close to 150 countries
over a sample of …ve-year periods from 1970 to 2010.
Our main results can be summarised in three points. First, our identi…cation strategy
uncovers a strong and statistically signi…cant positive (negative) e¤ect of real depreci-
ation (appreciation) on real per capita growth over …ve-year average periods. Second,
the e¤ect is visible in developing countries and pegs, and is not signi…cant or wrongly
signed in advanced countries and ‡
oats, where our instruments are also weaker. On the
other hand, the e¤ects appear to be approximately symmetric between appreciations and
depreciations, although large depreciations appear to have a stronger impact than large
appreciations on average. Finally, the e¤ects that we estimate through the IV approach
are much larger than previous comparable results in the literature, which suggests that
our identi…cation leads to sharper results. Hence, our overall conclusion is that the ex-
change rates does matter for growth in developing economies, but substantially less so in
advanced ones, which con…rms and strengthens the conclusions of Rodrik (2008).
It should be noted that our paper contains a careful empirical analysis of the e¤ects of
exogenous changes in the real exchange rate on per capita GDP growth from a medium
term perspective, but is subject, like any analysis, to caveats and limitations. Most
important, it has relatively little to say on the transmission channels. Future research
ECB Working Paper 1921, June 2016 16
18. may want to focus on disentangling the e¤ect on the most important component of output
(e.g. tradables and non-tradables), and to distinguish the contributions of productivity
and of production inputs (capital and labour). Such analysis will unavoidably face more
data limitations than we do in this paper, but is nevertheless essential to shed some light
on the way exchange rates in‡
uence countries’economic performance over time.
Finally, an additional caveat concerns the policy implications of our work. First, the
results suggest that using the exchange rate as a policy lever could be bene…cial only in
the early stages of economic development, while it becomes irrelevant in the long term
as countries get richer. Financial development could be one of the factors making the
exchange rate unimportant for growth (Aghion et al. 2009). Second, it is not evident what
type of exchange rate regime a developing country should adopt to maintain a relatively
weak exchange rate in order to foster growth. By pegging their currency - a popular choice
among small open developing economies - the countries accept to follow the vagaries of
another’
s country currency, bene…tting from devaluations but paying a price in terms of
slower growth in case of appreciations. Levy-Yeyati and Sturzenegger (2003) …nd that less
‡
exible exchange rate regimes are associated with slower growth in developing countries.
Our evidence suggests instead that, if anything, it would be important to choose to peg at
the right time, because over time even pegging countries do not control their real exchange
rate. Our results are therefore more relevant to understand the reasons why governments
may pay attention to exchange rates, rather than a prescription for targeting exchange
rates in developing countries.
ECB Working Paper 1921, June 2016 17
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ECB Working Paper 1921, June 2016 21
23. Table 1. Data description
Variable Description Source
Real per capita GDP PPP Converted GDP Per Capita (Chain Series), at 2005 constant
prices.
PWT
Real exchange rate (RER)
vs. USD
Purchasing Power Parity (PPP) over GDP in national currency
units per USD divided by nominal exchange rate versus USD
(XRAT). An increase indicates appreciation of national currency.
PWT
Overvaluation of RER vs.
USD
Log deviation of the bilateral real exchange rate against the USD
from equilibrium. As a proxy of the exchange rate fundamental
value, the real exchange rate is regressed against the per capita GDP
to account for the Balassa-Samuelson effect, including country and
time-fixed effects.
PWT and own
calculations
CPI-based Real Effective
Exchange Rate (REER)
Index. An increase indicates an appreciation of the national
currency.
IMF IFS
Inflation Consumer price index (2005 = 100). PWT
Trade openness Total trade, exports plus imports, at current prices, as % of GDP. PWT
Saving ratio Gross national income less total consumption, plus net transfers, as
% of GDP.
WDI
Monetary policy rate Rate (number of countries): discount rate (110); refinancing, repo or
other rate (12), money market rate (22); interbank 3-month rate (4);
Treasury bill rate (16).
IMF IFS, GFD,
Haver and
national sources
Net capital inflows Total financial liabilities minus total financial assets, excluding
foreign exchange reserves, as % of GDP
IMF IFS
Foreign exchange reserves Growth rate of official foreign exchange reserves in USD IMF IFS
World capital flows Sum of financial account liabilities (USD, current prices). IMF IFS
De jure index of capital
account openness
Chinn-Ito index based on the IMF's Annual Report on Exchange
Arrangements and Exchange Restrictions.
Chinn and Ito
(2006)
Sources. International Monetary Fund International Financial Statistics (IMF IFS) and World Economic Outlook (WEO).
Penn World Tables 7.1 (PWT). World Bank World Development Indicators (WDI). Global Financial Data (GFD). Haver.
Chinn, M. D. and H Ito (2006)."What Matters for Financial Development? Capital Controls, Institutions, and Interactions,"
Journal of Development Economics, 81, 1, 163-192 (October).
ECB Working Paper 1921, June 2016 22
24. Table 2. Summary statistics
(1) (2) (3) (4) (5)
Obs. Mean Std. Dev. Min Max
Real per capita GDP growth (%) 1,369 1.696 4.154 -27.12 40.62
Real exchange rate vs. USD (log) 1,380 4.079 0.490 2.137 9.103
CPI-based REER (log) 728 4.735 0.520 3.367 11.58
Overvaluation of RER vs. USD (log) 1,380 0.000 0.470 -2.045 5.017
Monetary policy rate (%) 1,027 21.26 165.4 0.100 4,781
Net capital inflows to GDP (%) 1,067 3.041 8.638 -55.29 135.0
Initial GDP per capita level (log) 1,354 8.379 1.283 5.179 11.31
Inflation (%) 1,091 13.70 28.25 -4.841 344.5
Saving ratio (% of GDP) 1,225 17.16 16.33 -87.91 82.19
Trade openness (% of GDP) 1,380 81.13 47.82 1.954 410.2
World capital flows to GDP (ratio) 1,488 2.145 1.026 1.276 4.246
De jure capital account openness (index) 1,179 -0.0113 1.487 -1.864 2.439
Growth in foreign exchange reserves (%) 1,199 13.07 25.42 -148.8 266.8
ECB Working Paper 1921, June 2016 23
25. Table 3. OLS estimates
Dependent variable: Real per capita GDP growth
(1) (2) (3) (4) (5) (6) (7)
Baseline Advanced
Excluding
advanced
Pegs Floats REER
Overval.
RER
Real exchange rate (RER) vs. USD -0.177 0.972 0.208 -1.037 1.086
(0.475) (1.880) (0.546) (0.735) (0.918)
Real effective exchange rate (REER) 0.057
(0.526)
Overvaluation of RER vs. USD -0.665
(0.476)
De jure financial openness (t-1) 0.217* -0.156 0.371** 0.221 0.324 0.238* 0.273*
(0.128) (0.207) (0.154) (0.143) (0.341) (0.127) (0.156)
Monetary policy rate 0.001*** -0.071 0.001*** -0.024 0.001*** 0.001*** 0.001***
(0.000) (0.041) (0.000) (0.026) (0.000) (0.000) (0.000)
Net capital inflows to GDP 0.158*** -0.017 0.169*** 0.174*** 0.013 0.158*** 0.188***
(0.041) (0.055) (0.040) (0.038) (0.071) (0.041) (0.047)
Initial GDP per capita level -5.793*** -11.063*** -5.420*** -5.692*** -5.989*** -5.756*** -7.139***
(0.660) (1.565) (0.633) (0.853) (1.292) (0.642) (0.894)
Inflation -0.022*** 0.014 -0.019*** 0.007 -0.026*** -0.023*** -0.018***
(0.006) (0.060) (0.005) (0.036) (0.007) (0.006) (0.005)
Saving ratio 0.151*** 0.191*** 0.142*** 0.157*** 0.070* 0.150*** 0.163***
(0.036) (0.059) (0.036) (0.042) (0.042) (0.036) (0.038)
Trade openness 0.030*** 0.024 0.030*** 0.031*** 0.061*** 0.029*** 0.039***
(0.007) (0.016) (0.008) (0.009) (0.016) (0.007) (0.008)
Observations 742 158 584 492 204 742 526
Countries 146 23 123 129 70 146 97
R2 0.438 0.685 0.459 0.488 0.383 0.440 0.524
Notes. The table reports OLS estimates with robust standard errors clustered by country, including
time and country fixed-effects. The sample period is 1970-2010, using non-overlapping 5-year averages.
***,**,* indicate statistical significance at the 1, 5, 10 per cent level. See Table 1 for a description of
the variables.
ECB Working Paper 1921, June 2016 24
26. Table 4. First stage regressions, OLS
Dependent variable: Bilateral real exchange rate vs. the USD
(1) (2) (3)
De jure financial openness (t-1) 0.031* 0.038** 0.027*
(0.016) (0.017) (0.016)
Monetary policy rate -0.000 -0.000 -0.000
(0.000) (0.000) (0.000)
Net capital inflows to GDP 0.002* 0.002* 0.002**
(0.001) (0.001) (0.001)
Initial GDP per capita level 0.265*** 0.240*** 0.238***
(0.073) (0.074) (0.074)
Inflation -0.001 -0.001 -0.001
(0.001) (0.001) (0.001)
Saving ratio -0.002 -0.001 -0.001
(0.002) (0.002) (0.002)
Trade openness -0.003** -0.003** -0.003**
(0.001) (0.001) (0.001)
World capital flows*De jure financial openness (t-1) 0.022** 0.021**
(0.009) (0.008)
Growth in foreign exchange reserves -0.001*** -0.001***
(0.000) (0.000)
Observations 742 737 737
Countries 146 146 146
R2 0.302 0.305 0.313
Notes. The table reports OLS estimates with robust standard errors clustered by country. The sample
period is 1970-2010, using non-overlapping 5-year averages. ***,**,* indicate statistical significance at
the 1, 5, 10 per cent level. The model includes time dummies and country fixed effects. See Table 1
for a description of the variables.
ECB Working Paper 1921, June 2016 25
27. Table 5. IV estimates
Dependent variable: Real per capita GDP growth
(1) (2) (3) (4) (5) (6) (7)
Baseline Advanced
Excluding
advanced
Pegs Floats REER
Overval.
RER
Real exchange rate (RER) vs. USD -11.712*** -7.094 -14.743** -12.239*** 8.104
(4.008) (15.551) (6.972) (4.275) (10.100)
Real effective exchange rate (REER) -9.721**
(4.941)
Overvaluation of RER vs. USD -11.222***
(3.691)
De jure financial openness (t-1) 0.693*** 0.200 0.538** 0.647** -0.141 0.759** 0.664***
(0.240) (0.698) (0.270) (0.278) (0.735) (0.308) (0.224)
Monetary policy rate 0.000 -0.046 0.000 -0.025 0.002 0.000 0.000
(0.001) (0.082) (0.001) (0.050) (0.001) (0.001) (0.001)
Net capital inflows to GDP 0.174*** 0.010 0.188*** 0.188*** -0.028 0.191*** 0.168***
(0.033) (0.074) (0.036) (0.030) (0.098) (0.041) (0.032)
Initial GDP per capita level -2.716* -8.641 -2.375 -2.389 -8.996** -5.252*** -4.405***
(1.392) (5.318) (1.789) (1.607) (4.571) (1.248) (0.923)
Inflation -0.034*** -0.058 -0.036** -0.049 -0.033*** -0.021* -0.032***
(0.013) (0.149) (0.017) (0.070) (0.012) (0.012) (0.012)
Saving ratio 0.129*** 0.219*** 0.125*** 0.156*** 0.142 0.132*** 0.123***
(0.033) (0.083) (0.036) (0.037) (0.105) (0.036) (0.032)
Trade openness 0.000 0.015 -0.011 0.004 0.112 0.017 0.001
(0.014) (0.025) (0.023) (0.016) (0.074) (0.015) (0.014)
Observations 731 158 573 471 177 522 731
Countries 140 23 117 109 46 94 140
F first stage 9.478 0.539 4.101 11.74 0.548 3.841 10.35
J test (p-value) 0.822 0.171 0.288 0.096 0.822 0.064 0.830
CLR test H0: β=0 (p-value) 0.000 0.360 0.004 0.001 0.346 0.005 0.000
Notes. The table reports the IV estimates with robust standard errors clustered by country, including
time and country fixed-effects. The real exchange rate is instrumented by two variables: (i) world
capital flows multiplied by the de jure (Chinn-Ito) index of capital account liberalisation at time t-1,
and (ii) the growth rate of foreign exchange reserves. Advanced economies are identified at the
beginning of the sample according to the IMF classification. Pegs and floats are identified according to
the Reinhart-Rogoff (2004) classification of exchange rate regimes. F first stage shows the Kleibergen-
Paap rk Wald F statistic to test for the relevance of the instruments. The J test is the weak-
instrument robust version of the test for the validity of the instruments, under the null hypothesis
that the instrumental variables are uncorrelated with the error term. The CLR test is an application
of the Moreira (2003) conditional likelihood-ratio test for the statistical significance of the main (beta)
coefficient associated with the real exchange in the presence of potentially weak instruments. The
sample period is 1970-2010, using non-overlapping 5-year averages. ***,**,* indicate statistical
significance at the 1, 5, 10 per cent level. See Table 1 for a description of the variables.
ECB Working Paper 1921, June 2016 26
28. Table 6. IV estimates: advanced vs. developing economies
Dependent variable: Real per capita GDP growth
(1) (2) (3) (4) (5) (6) (7) (8)
Advanced Developing
Developing
& Peg
Developing
& Float
Advanced Developing
Developing
& Peg
Developing
& Float
Threshold for per capita GDP:
above
$9,500
above
$6,000
Real exchange rate (RER) vs. USD -8.033 -19.836* -16.601** 12.211 -13.125 -16.776** -15.112** 11.487
(13.498) (10.539) (6.936) (8.998) (14.502) (8.152) (6.417) (7.216)
De jure financial openness (t-1) 0.657 0.354 0.388 0.246 0.859 -0.002 -0.232 0.553
(0.654) (0.352) (0.359) (0.642) (0.647) (0.370) (0.383) (0.621)
Monetary policy rate 0.015 0.000 -0.008 0.002* 0.001 -0.022 -0.330*** 0.029*
(0.034) (0.001) (0.042) (0.001) (0.001) (0.026) (0.095) (0.016)
Net capital inflows to GDP 0.111*** 0.226*** 0.208*** -0.064 0.129*** 0.195*** 0.183*** -0.029
(0.030) (0.047) (0.035) (0.261) (0.025) (0.052) (0.037) (0.182)
Initial GDP per capita level -4.919 -2.676 -2.629 -7.869** -4.391 -2.820* -1.010 -5.374*
(3.749) (2.119) (1.815) (3.615) (4.650) (1.653) (1.858) (2.950)
Inflation -0.063 -0.040* 0.018 -0.047** -0.038 -0.002 0.115* -0.091**
(0.139) (0.021) (0.084) (0.024) (0.031) (0.033) (0.069) (0.039)
Saving ratio 0.097** 0.144*** 0.176*** 0.199 0.092 0.166*** 0.149*** 0.170
(0.049) (0.041) (0.042) (0.131) (0.056) (0.040) (0.041) (0.114)
Trade openness 0.016 -0.018 0.002 0.221 0.005 -0.014 0.018 0.230*
(0.033) (0.036) (0.023) (0.137) (0.035) (0.037) (0.023) (0.140)
Observations 266 465 299 104 340 375 237 82
Countries 48 92 72 29 68 77 58 25
F first stage 1.593 2.184 4.633 1.399 1.155 2.982 4.962 2.120
J test (p-value) 0.191 0.332 0.121 0.125 0.720 0.916 0.990 0.786
CLR test H0: β=0 (p-value) 0.472 0.002 0.007 0.096 0.308 0.006 0.014 0.132
below $9,500 below $6,000
Notes. The table reports the IV estimates with robust standard errors clustered by country, including
time and country fixed-effects. The real exchange rate is instrumented by two variables: (i) world
capital flows multiplied by the de jure (Chinn-Ito) index of capital account liberalisation at time t-1,
and (ii) the growth rate of foreign exchange reserves. Advanced economies are distinguished from
developing economies according to two different thresholds in the per capita GDP (in USD at PPP):
(i) the average value across all countries in the sample (USD 9,500) and (ii) the threshold used by
Rodrik, 2008 (USD 6,000). Pegs and floats are identified according to the Reinhart-Rogoff (2004)
classification of exchange rate regimes. F first stage shows the Kleibergen-Paap rk Wald F statistic to
test for the relevance of the instruments. The J test is the weak-instrument robust version of the test
for the validity of the instruments, under the null hypothesis that the instrumental variables are
uncorrelated with the error term. The CLR test is an application of the Moreira (2003) conditional
likelihood-ratio test for the statistical significance of the main (beta) coefficient associated with the
real exchange in the presence of potentially weak instruments. The sample period is 1970-2010, using
non-overlapping 5-year averages. ***,**,* indicate statistical significance at the 1, 5, 10 per cent level.
See Table 1 for a description of the variables.
ECB Working Paper 1921, June 2016 27
29. Table 7. Robustness of IV estimates
Dependent variable: Real per capita GDP growth
(1) (2) (3) (4)
Baseline
One IV: World
capital flows*Kaopen
One IV: Reserves
growth
1970-2005
Real exchange rate (RER) vs. USD -11.712*** -9.603* -12.376** -6.940*
(4.008) (5.389) (5.400) (3.598)
De jure financial openness (t-1) 0.693*** 0.618** 0.721** 0.577**
(0.240) (0.270) (0.291) (0.227)
Monetary policy rate 0.000 0.000 0.000 0.000
(0.001) (0.001) (0.001) (0.001)
Net capital inflows to GDP 0.174*** 0.171*** 0.175*** 0.197***
(0.033) (0.032) (0.034) (0.031)
Initial GDP per capita level -2.716* -3.283** -2.540 -4.562***
(1.392) (1.673) (1.692) (1.197)
Inflation -0.034*** -0.031** -0.034** -0.021***
(0.013) (0.012) (0.014) (0.008)
Saving ratio 0.129*** 0.133*** 0.128*** 0.147***
(0.033) (0.033) (0.033) (0.035)
Trade openness 0.000 0.006 -0.001 0.010
(0.014) (0.016) (0.018) (0.014)
Observations 731 737 731 578
Countries 140 141 140 117
F first stage 9.478 7.938 11.33 7.926
J test (p-value) 0.822 . . 0.067
CLR test H0: β=0 (p-value) 0.000 . . 0.034
Notes. With the exception of columns (2) and (3), the table reports the IV estimates where the real
exchange rate is instrumented by two variables: (i) world capital flows multiplied by the de jure
(Chinn-Ito) index of capital account liberalisation at time t-1, and (ii) the growth rate of foreign
exchange reserves. Columns (4) and (5) distinguish the countries according to their international
currency exposure (Net FX), as measured by Lane and Shambaugh (2012) and Benetrix et al. (2015).
See Table 1 for a description of the variables and notes to Table 5 for the methodology and further
details. ***,**,* indicate statistical significance at the 1, 5, 10 per cent level.
ECB Working Paper 1921, June 2016 28
30. Table 8. Robustness of IV estimates: non-linearity
Dependent variable: Real per capita GDP growth
(1) (2) (3) (4) (5) (6) (7)
Appreciations Depreciations
Appreciations
& Peg
Depreciations
& Peg
Excl. large
depreciations
Excl. large
appreciations
Excl. large
appr. & depr.
Real exchange rate (RER) vs. USD -5.197* -7.839* -3.573 -10.113 -8.815*** -13.001*** -10.000***
(3.104) (4.753) (3.381) (9.494) (3.023) (4.156) (3.198)
De jure financial openness (t-1) 0.265 0.864*** 0.130 1.199** 0.594*** 0.760*** 0.662***
(0.206) (0.277) (0.228) (0.493) (0.195) (0.242) (0.202)
Monetary policy rate -0.000 -0.009 0.001 -0.504* 0.000 0.000 0.000
(0.001) (0.011) (0.025) (0.276) (0.001) (0.001) (0.001)
Net capital inflows to GDP 0.075** 0.069*** 0.085** 0.070*** 0.175*** 0.156*** 0.160***
(0.036) (0.021) (0.040) (0.023) (0.033) (0.029) (0.029)
Initial GDP per capita level -4.283*** -4.431*** -4.167*** -1.182 -3.636*** -2.416* -3.289***
(1.167) (1.379) (1.370) (2.789) (1.147) (1.386) (1.150)
Inflation -0.025*** -0.023** -0.016 0.100 -0.022** -0.026** -0.021**
(0.009) (0.011) (0.094) (0.113) (0.009) (0.012) (0.009)
Saving ratio 0.096*** 0.071 0.093*** 0.058 0.141*** 0.090*** 0.107***
(0.028) (0.043) (0.033) (0.051) (0.031) (0.029) (0.027)
Trade openness 0.006 0.028* 0.019 -0.003 0.007 0.006 0.009
(0.012) (0.015) (0.013) (0.029) (0.012) (0.014) (0.011)
Observations 386 295 259 161 704 696 672
Countries 115 92 86 55 140 131 130
F first stage 17.00 4.567 12.99 1.268 13.15 9.532 11.93
J test (p-value) 0.654 0.908 0.013 0.115 0.991 0.393 0.536
CLR test H0: β=0 (p-value) 0.072 0.058 0.153 0.214 0.001 0.000 0.000
Notes. The table reports the IV estimates where the real exchange rate is instrumented by two
variables: (i) world capital flows multiplied by the de jure (Chinn-Ito) index of capital account
liberalisation at time t-1, and (ii) the growth rate of foreign exchange reserves. The sample in column
(5) (in column (6)) excludes the observations in the left (right) tail (5th
percentile) of the distribution
of real exchange rate log-changes. Finally, in column (7), both tails of the distribution have been
excluded from the sample. See Table 1 for a description of the variables and notes to Table 5 for the
methodology and further details. ***,**,* indicate statistical significance at the 1, 5, 10 per cent level.
ECB Working Paper 1921, June 2016 29
31. Table 9. GMM estimates
Dependent variable: Real per capita GDP growth
(1) (2) (3) (4) (5) (6) (7) (8)
Baseline Advanced
Excluding
advanced
Pegs Floats REER
Overval.
RER
1970-2005
Real exchange rate (RER) vs. USD -3.947** 11.941* -3.659** -5.974*** 2.541 -1.846
(1.776) (5.843) (1.796) (2.049) (1.973) (1.632)
Real effective exchange rate (REER) -3.834*
(2.308)
Overvaluation of RER vs. USD -3.938**
(1.740)
De jure financial openness (t-1) 0.244 -0.436 0.075 0.111 -0.374 0.299 0.241 0.194
(0.347) (0.469) (0.351) (0.764) (0.511) (0.355) (0.343) (0.310)
Monetary policy rate -0.000 -0.095 -0.000 0.005* 0.002** -0.000 -0.000 -0.000
(0.000) (0.109) (0.000) (0.003) (0.001) (0.000) (0.000) (0.000)
Net capital inflows to GDP 0.188*** 0.015 0.194*** 0.180*** 0.262*** 0.203*** 0.186*** 0.204***
(0.022) (0.084) (0.025) (0.024) (0.096) (0.023) (0.022) (0.020)
Initial GDP per capita level 0.321 -10.501*** 0.682 0.049 0.154 -0.633 -0.313 -0.095
(0.617) (3.434) (0.741) (0.856) (0.895) (0.479) (0.505) (0.495)
Inflation -0.049*** 0.030 -0.047*** -0.039* -0.041*** -0.051*** -0.048*** -0.044***
(0.010) (0.134) (0.010) (0.022) (0.014) (0.013) (0.010) (0.008)
Saving ratio 0.235*** 0.149 0.225*** 0.221*** 0.063 0.214*** 0.232*** 0.269***
(0.040) (0.167) (0.039) (0.046) (0.131) (0.046) (0.039) (0.045)
Trade openness 0.024 0.014 0.018 0.015 0.019 0.018 0.024 0.027*
(0.018) (0.013) (0.019) (0.017) (0.018) (0.013) (0.018) (0.016)
Observations 742 158 584 492 204 526 742 607
Countries 146 23 123 129 70 97 146 142
Instruments 24 24 24 24 24 24 24 23
Hansen test (p-value) 0.772 0.554 0.882 0.101 0.327 0.866 0.771 0.151
Notes. The table reports the two-step system-GMM estimates with the Windmeijer (2004) small
sample correction, treating the real exchange rate as endogenous (instrumented with the second lag
level in the first differences equation), the control variables as predetermined (instrumented with the
first lag level) and time fixed effects as exogenous. The Hansen test checks the validity of the
instruments, under the null hypothesis that the instrumental variables are uncorrelated with the error
term. See Table 1 for a full description of the variables. ***,**,* indicate statistical significance at the
1, 5, 10 per cent level.
ECB Working Paper 1921, June 2016 30
32. Table 10. Impact of depreciation on average annual growth (over 5-year period).
Summary and benchmarking to other studies
Study
Dependent variable (Sample)
Real exchange rate Impact of 20%
depreciation on
growth
Method
Habib Mileva Stracca (2015)
Real GDP per capita
(1970-2010)
Bilateral vs. USD:
level 0.0% OLS
overvaluation 0.1% OLS
level 2.3%*** IV
overvaluation 2.2%*** IV
level 0.8%*** GMM
overvaluation 0.8%*** GMM
Rodrik (2008)
Real GDP per capita
(1950-2004)
Bilateral vs. USD:
level 0.1% ** OLS
overvaluation 0.3%*** OLS
overvaluation 0.2%** GMM
Aghion et al. (2009)
Real GDP per worker
(1960-2000)
Trade-weighted
effective:
overvaluation 0.2% ** GMM
***,**,* indicate statistical significance at the 1, 5, 10 per cent level.
ECB Working Paper 1921, June 2016 31