“…On the same line, Razmi et al identified a positive relation between the real exchange rate undervaluation and economic growth, especially in the case of emerging economies [31]. Ribeiro et al claimed that the real exchange rate affects growth indirectly through its impacts on functional income distribution and technological innovation [32]. Using a VAR model, Wesseh and Lin found that the depreciation of the Liberian dollar causes a decrease in the real GDP, while its appreciation has no impact on real GDP in Liberia [33].…”
Section: Literature Review and Research Hypothesesmentioning
The role of the interest and exchange rates in sustaining economic growth has been a highly researched subject. Therefore, this study examines the influence of the monetary policy interest rate, the real exchange rate and the business climate in the Euro area on the economic growth in Romania. For this purpose, we have applied a pre-test for structural breaks to identify the existence of structural breaks, followed by the traditional unit root tests and the unit root tests with structural breaks to verify the stationarity of the variables. The results of the Bound cointegration test led to the autoregressive distributed lag (ARDL) short-run model that measures the short-run impact of the interest rate, exchange rate and the business climate in the Euro area on the economic growth of Romania. Our findings show that in the short run, the economic growth is negatively influenced by the interest rate, and positively by the exchange rate. We also indicate that the business climate in the Euro area has mixed effects on the economic growth. Finally, considering the growing interdependence between the internal and external (European) business environment, the results are highly significant for handling the interest and exchange rates in sustaining economic growth.
“…On the same line, Razmi et al identified a positive relation between the real exchange rate undervaluation and economic growth, especially in the case of emerging economies [31]. Ribeiro et al claimed that the real exchange rate affects growth indirectly through its impacts on functional income distribution and technological innovation [32]. Using a VAR model, Wesseh and Lin found that the depreciation of the Liberian dollar causes a decrease in the real GDP, while its appreciation has no impact on real GDP in Liberia [33].…”
Section: Literature Review and Research Hypothesesmentioning
The role of the interest and exchange rates in sustaining economic growth has been a highly researched subject. Therefore, this study examines the influence of the monetary policy interest rate, the real exchange rate and the business climate in the Euro area on the economic growth in Romania. For this purpose, we have applied a pre-test for structural breaks to identify the existence of structural breaks, followed by the traditional unit root tests and the unit root tests with structural breaks to verify the stationarity of the variables. The results of the Bound cointegration test led to the autoregressive distributed lag (ARDL) short-run model that measures the short-run impact of the interest rate, exchange rate and the business climate in the Euro area on the economic growth of Romania. Our findings show that in the short run, the economic growth is negatively influenced by the interest rate, and positively by the exchange rate. We also indicate that the business climate in the Euro area has mixed effects on the economic growth. Finally, considering the growing interdependence between the internal and external (European) business environment, the results are highly significant for handling the interest and exchange rates in sustaining economic growth.
“…However, they also indicated that real exchange rate movements did not turn out to be the major variable in explaining economic growth. Finally, Ribeiro et al (2019), by taking into account the structural features of the developing economies, examined the relationship between real exchange rate and economic growth. The sample consisted of 54 developing countries and covered the period 1990-2010.…”
The traditional view asserts that there is a positive relationship between the foreign exchange rate and economic growth. So much so that an increase in foreign exchange rates enhances the net export volume and thus positively affects economic growth due to the increasing total demand. However, structural economists argue that there is an inverse relationship between the exchange rate and economic growth. Especially in developing countries, the input structure of production depends on imported capital and intermediate goods, so an increase in exchange rates makes import production inputs more expensive and thus negatively affects economic growth. Turkey, leaving foreign exchange rate free float since 2002, has implemented the Inflation Targeting (IT) regime as the monetary policy. Therefore, Turkey has a real experience to analyse the role of exchange rate changes on economic growth. Accordingly, in our study, using the quarterly data between 2002-Q1 and 2019-Q1, the relationship between exchange rate and economic growth was examined by employing Johansen cointegration test, Granger causality test and Innovation Accounting Techniques. Empirical findings suggest that there is a negative causal relationship between exchange rates and economic growth, as claimed by structuralist economists. In terms of policy implications, it can be argued that, even under the inflation targeting regime in Turkey, both price and exchange rate stability should be provided together.
“…Rodrik (2008) found that it was only important for the low-income countries. Woodford (2008), Goncalves and Rodrigues (2017) and Ribeiro et al (2019), inter alios, find little or no support for this result.…”
Section: Some Problems With Razmi's (2016) Modelmentioning
This paper reconsiders the argument first debated in the 1980s and revisited by Blecker (2016) and Razmi (2016), inter alios, that Thirlwall's law is nothing but a near-identity. It is shown theoretically and by simulation analysis that this proposition is erroneous. It is also demonstrated that Razmi's (2016) specification of the balance-of-payments-constrained growth model is problematical. The paper concludes by assessing the effectiveness of the rate of change of relative prices for export and import growth. Recent evidence provides further support for the importance of non-price competitiveness in international trade and, hence, for Thirlwall's law.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.