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Currency misalignments and growth: a new look using nonlinear panel data methods

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  • Sophie B鲥au
  • Antonia López Villavicencio
  • Val鲩e Mignon
Abstract
The aim of this article is to investigate the link between currency misalignments and economic growth. Relying on panel cointegration techniques, we calculate Real Exchange Rate (RER) misalignments as deviations of actual RERs from their equilibrium values for a set of advanced and emerging economies. Estimating Panel Smooth Transition Regression (PSTR) models, we show that RER misalignments have a differentiated impact on economic growth depending on their sign: whereas overvaluations negatively affect economic growth, RER undervaluations significantly enhance it. This result indicates that undervaluations may drive the exchange rate to a level that encourages exports and promotes growth.

Suggested Citation

  • Sophie B鲥au & Antonia López Villavicencio & Val鲩e Mignon, 2012. "Currency misalignments and growth: a new look using nonlinear panel data methods," Applied Economics, Taylor & Francis Journals, vol. 44(27), pages 3503-3511, September.
    • Handle: RePEc:taf:applec:44:y:2012:i:27:p:3503-3511
    DOI: 10.1080/00036846.2011.577022
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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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