“…However, the empirical evidence has, so far, failed to establish a clear causal effect of exchange rate misalignment on export diversification. Agosin et al (2012) and Levy-Yeyati et al (2013) didn't support the existence of such an effect while Freund and Pierola (2012) and Rajan and Subramanian (2011) did.…”
Section: Introductionmentioning
confidence: 85%
“…In order to enable comparison with other studies (e.g. Agosin et al, 2012 andLevy-Yeyati et al, 2013), we focus here on the indexes explained below.…”
“…However, the empirical evidence has, so far, failed to establish a clear causal effect of exchange rate misalignment on export diversification. Agosin et al (2012) and Levy-Yeyati et al (2013) didn't support the existence of such an effect while Freund and Pierola (2012) and Rajan and Subramanian (2011) did.…”
Section: Introductionmentioning
confidence: 85%
“…In order to enable comparison with other studies (e.g. Agosin et al, 2012 andLevy-Yeyati et al, 2013), we focus here on the indexes explained below.…”
“…Banking on the latter, the export-led growth model is based on making an economy grow through exporting manufactures, which will raise a country's wealth much faster than by closing the domestic manufacturing markets and exporting raw materials only, allowing the country to increase its technological degree of sophistication during the process. Other views link undervalued exchange rates to higher growth through different channels such as real interest rates and savings rates (Dooley et al, 2004) or real wages and investment rates (Levy-Yeyati and Sturzenegger, 2007).…”
Section: Dutch Disease Real Exchange Rate Appreciation and Economicmentioning
We review the literature on Dutch disease, and document that shocks that trigger foreign exchange inflows (such as natural resource booms, surges in foreign aid, remittances, or capital inflows) appreciate the real exchange rate, generate factor reallocation, and reduce manufacturing output and net exports. We also observe that real exchange rate misalignment due to overvaluation and higher volatility of the real exchange rate lower growth. Regarding the effect of undervaluation of the exchange rate on economic growth, the evidence is mixed and inconclusive. However, there is no evidence in the literature that Dutch disease reduces overall economic growth. Policy responses should aim at adequately managing the boom and the risks associated with it.
“…In fact, this is the basis of the "fear of floating" (Calvo and Reinhart, 2002), which is a phenomenon mostly associated to EMEs. 3 Accordingly, during economic booms EMEs also experience "fear of appreciation" given their concerns for their loss of competitiveness (Levy-Yeyati and Sturzenegger, 2007).…”
a b s t r a c tEmerging economies with inflation targets (IT) face a dilemma between fulfilling the theoretical conditions of "strict IT", which imply a fully flexible exchange rate, or applying a "flexible IT", which entails a de facto managed-floating exchange rate with foreign exchange (forex) interventions to moderate exchange rate volatility. Using a panel data model for 37 countries we find that, although IT lead to higher exchange rate instability than alternative regimes, forex interventions in some IT countries have been more effective to lower volatility than in non-IT countries, which may justify the use of "flexible IT" by policymakers.
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