The Real Exchange Rate and Growth Revisited: The Washington Consensus Strikes Back?
IMF Working Papers, March 1, 2010
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- The Real Exchange Rate and Growth Revisited: The Washington Consensus Strikes Back?
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Bibliographic details
- Authors: Andrew Berg, Yanliang Miao
- Published: March 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451963755.001
Authors and publication
- By Andrew Berg, Yanliang Miao
- March 1, 2010
- Working Paper No. 2010/058
- Pages: 24
- Volume: 2010
- Issue: 058
- DOI: https://doi.org/10.5089/9781451963755.001
- Stock No: WPIEA2010058
- ISBN: 9781451963755
- ISSN: 1018-5941
Research question and competing views
- The paper examines why the real exchange rate matters for economic growth.
- Washington Consensus (WC) view:
- Real exchange rate misalignment implies macroeconomic imbalances that are themselves bad for growth.
- Rodrik (2008) view:
- Undervaluation relative to purchasing power parity promotes the otherwise inefficiently small tradable sector and is therefore good for growth.
Main empirical result
- The WC and Rodrik views are observationally equivalent for the main growth regressions reported by Rodrik (2008).
- Confirmed empirical findings:
- Overvaluations are bad for growth.
- Undervaluations are good for growth.
- Both results are consistent with the Rodrik story; the WC viewpoint can also be made consistent but requires additional interpretation ("some gymnastics").
Identification challenge
- There is an identification problem:
- Determinants of misalignment are also likely to be independent drivers of growth.
- Growth regressions of the type used are hard-pressed to disentangle the different channels linking misalignment and growth.
Subjects and keywords
- Subject: Exchange rates, Government consumption, Purchasing power parity, Real exchange rates, Terms of trade
- Keywords: dependent variable, WP
Source: IMF Working Paper — "The Real Exchange Rate and Growth Revisited: The Washington Consensus Strikes Back?", Andrew Berg and Yanliang Miao, March 1, 2010.