Growth and the Real Exchange Rate - Evidence from Eleven Countries

18 Pages Posted: 27 Aug 2007 Last revised: 25 Jul 2022

Date Written: August 1, 2001

Abstract

This working paper was written by Mark Crosby (University of Melbourne) and Glenn Otto (University of New South Wales).

There are conflicting theories about the effect of real exchange rate movements on output growth. Expenditure switching models suggest that a real depreciation leads to an increase in net exports due to the increase in competitiveness of the export sector, and hence to an increase in output growth. Contractionary depreciation models, on the other hand, suggest that real depreciations can reduce output growth. In this paper we examine the evidence on the impact of real exchange rate movements on the real economy for a number of countries. We find that different countries have had quite different experiences with respect to the response of output growth to exchange rate changes, and we offer some suggestions as to why this has been the case.

Suggested Citation

Hong Kong Institute for Monetary and Financial Research, Growth and the Real Exchange Rate - Evidence from Eleven Countries (August 1, 2001). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 08/2001, Available at SSRN: https://ssrn.com/abstract=1009396 or http://dx.doi.org/10.2139/ssrn.1009396

Hong Kong Institute for Monetary and Financial Research (Contact Author)

Hong Kong Institute for Monetary and Financial Research ( email )

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