Real Exchange Rate Misalignments and Growth

33 Pages Posted: 13 Jul 2000 Last revised: 20 May 2008

See all articles by Ofair Razin

Ofair Razin

Deceased

Susan M. Collins

Brookings Institution - Economic Studies Program; Georgetown University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 1997

Abstract

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

Suggested Citation

Razin (deceased), Ofair and Collins, Susan Margaret1, Real Exchange Rate Misalignments and Growth (September 1997). NBER Working Paper No. w6174. Available at SSRN: https://ssrn.com/abstract=225932

Ofair Razin (deceased)

Deceased

N/A

Susan Margaret1 Collins (Contact Author)

Brookings Institution - Economic Studies Program ( email )

1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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