Economics Department Working Paper Series
Working Paper Number
2013-11
Publication Date
2013
DOI
https://doi.org/10.7275/4831618
Recommended Citation
Rapetti, Martin G., "The Real Exchange Rate and Economic Growth: Some Observations on the Possible Channels" (2013). Economics Department Working Paper Series. 167.
https://doi.org/10.7275/4831618
Comments
A recent body of empirical research has documented a strong association between the level and volatility of the RER and economic growth. This research has relied on a variety of econometric techniques applied to large cross-country data sets. Although the documented positive effects of both RER competitiveness and stability on growth appear to be robust, it is still unclear what the mechanisms driving these associations are. Several explanations have been proposed, but their theoretical examination and empirical validation is still in an infant stage. I analyze the mechanisms that have been proposed and evaluate them in light of the documented empirical evidence. My reading is that two of them adjust to the empirical findings best: the financial globalization channel and the tradable-led growth channel. I conclude that since these mechanisms are not mutually exclusive, both might have some explanatory power.