Real Exchange Rate and Aggregate Demand: Empirical Evidence, 1981-2010
DOI:
https://doi.org/10.24275/uam/azc/dcsh/ae/2021v36n92/MartinezPalabras clave:
undervalued currency, aggregate demand componentsResumen
This paper assesses the effects of an undervalued currency upon key macroeconomic variables for different developed and developing countries. Based on a reformulation of Rodrik’s undervaluation index, our econometric GMM results suggest that an undervalued currency has been able to enhance these macroeconomic variables in the long run. Nevertheless, when we disaggregate the main components of aggregate demand for a selected set of countries, we find that an undervalued currency has expansionary and contractionary effects in the short-run upon the sectoral macroeconomic balances, the ratios of manufacturing production to GDP, industrial employment to total employment, the wage-share, and the inflation rate.
JEL Classification: F50; F31; F41; C32; C22.
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Bresser-Pereira, L. (2016). Reflecting on new developmentalism and classical developmentalism. Review of Keynesian Economics, Vol. 4(3), 331-352. https://doi.org/10.4337/roke.2016.03.07
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Missio, F., Jayme, F., Britto, G., and Oreiro, J. (2015). Real Exchange Rate and Economic Growth: New Empirical Evidence. Metroeconomica, Vol 66, Issue 4: 686-714. https://doi.org/10.1111/meca.12087
Pesaran, M. H. and Zhao, Z. (1998). Bias Reduction in Estimating Long-run Relationships from Dynamic Heterogenous Panels. Cambridge Working Papers in Economics 9802 available at https://ideas.repec.org/p/cam/camdae/9802.html
Polterovich, V. and Popov, V. (2003). Accumulation of Foreign Exchange Reserves and Long-Term Growth. NES working paper. Available at SSRN: https://dx.doi.org/10.2139/ssrn.1751866
Razmi, A., Rappetti, M., and Skott, P. (2009). The Real Exchange Rate as an Instrument of Development Policy. UMASS working papers 2009-07. Available at https://ideas.repec.org/p/ums/papers/2009-07.html
Ribeiro, McCombie, and Tadeu-Lima (2016). Exchange Rate, Income Distribution and Technical Change in a Balance-of-Payments Constrained Growth Model. Review of Political Economy. Vol. 28, No. 4, 545-565. https://doi.org/10.1080/09538259.2016.1205819
Rodrik, D. (2008). The Real Exchange Rate and Economic Growth. Brookings papers on Economic Activity, Fall, 365-412, September. https://doi.org/10.1353/eca.0.0020
Shaikh, A. (2016). Capitalism: Competition, Conflict, Crises. New York: Oxford University Press.
Shaikh, A. (2012). Three Balances and Twin Deficits: Godley versus Ruggles and Ruggles. in D. Papadimitriou and G. Zezza, eds., Contributions in Stock-Flow Modeling, Essays in Honor to Wynne Godley: 125-136. London: Palgrave Macmillan. https://doi.org/10.1057/9780230367357_6
Stock, J. and Watson, M. (2015). Introduction to Econometrics. 3er. Ed. New York: Pearson.
UNCTAD. Trade and Development Report (2018). Power, Platforms and the Free Trade Delusion. New York: United Nations.
UNCTAD. Trade and Development Report (2020). From Global Pandemic to Prosperity for all: Avoiding another Lost Decade. New York: United Nations.
Amsden, A. (2004). Import substitution in high-tech industries: Prebisch lives in Asia!. CEPAL Review, No. 82, pp. 75-89. https://repositorio.cepal.org//handle/11362/11011
Arellano, M. and Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, Vol. 58, issue 2: 277-297. https://doi.org/10.2307/2297968
Asteriou, D. and Stephen, H. (2011). Applied Econometrics. Second Edition, London: Palgrave Macmillan.
Balassa, B. (1964). The Purchasing-Power Parity Doctrine: A Reappraisal. Journal of Political Economy, Vol. 72 (6): 584-596. https://doi.org/10.1086/258965
Baltagi, B. (2005). Econometric Analysis of Panel Data. Third Edition. Sussex: John Wiley & Sons Ltd.
Bhalla, S. (2012). Devaluing to Prosperity: Misaligned currencies and their Growth Consequences. Washington, DC. Peterson Institute for International Economics.
Blecker, R. and Razmi, A. (2008). The fallacy of composition and contractionary devaluation: output effects of real exchange rate shocks in semi-industrialised countries. Cambridge Journal of Economics, Vol. 32, no. 1, pp. 83-109. https://doi.org/10.1093/cje/bem021
Bresser-Pereira, L. (2016). Reflecting on new developmentalism and classical developmentalism. Review of Keynesian Economics, Vol. 4(3), 331-352. https://doi.org/10.4337/roke.2016.03.07
Chang, Ha-Joon (2006). Industrial policy in East Asia-Lessons for Europe. EIB papers 11/2006, European Investment Bank, Economics Department. Vol. 11, Issue 2, pp.106-132. http://hdl.handle.net/10419/44860
Diaz Alejandro, C. (1963). A Note on the Impact of Devaluation and the Redistributive Effect. Journal of Political Economy, Vol. 71, No. 6. https://doi.org/10.1086/258816
Greene, W. (2008). Econometric Analysis. Six Edition. New Jersey: Prentice Hall.
Guzman, M., Ocampo, J., and Stiglitz, J. (2017). Real Exchange Rate Policies for Economic Development. National Bureau of Economic Research. Working Paper 23868. September.https://doi.org/10.3386/w23868
Hill, R., W. Griffiths, and G. Lim. (2011). Principles of Econometrics. 4th ed. New York: John Wiley.
Johnson, S., Ostry, J., Subramanian, A. (2007). The Prospects for Sustained Growth in Africa: Benchmarking the Constraints. IMF Working Paper No. 07/52. https://doi.org/10.1057/imfsp.2009.22
Krugman, P., and Taylor, L. (1978). Contractionary effects of devaluation. Journal of International Economics, Volume 8, Issue 3, August: 445-456. https://doi.org/10.1016/0022-1996(78)90007-7
Lopez, J. and Perrotini, I. (2006). On floating exchange rates, currency depreciation and effective demand. Banca Nazionale del Lavoro, vol. LIX, no 238, September, pp. 221-42.
Mántey, G. (2017). Desindustrialización prematura y tipo de cambio real: Mitos, realidad y desafíos para las economías emergentes. En López T. y Ortiz, L. (Coordinadores). Asimetrías Económicas y Financieras de la Globalización: Retos y oportunidades para los Países en Desarrollo. México: UNAM, FES ACATLÁN Y DGAPA.
Martínez-Hernández, F., (2019). Real Exchange Rate, Effective Demand, and Economic Growth: Theory and Empirical Evidence for Developed and Developing Countries, 1960-2010. Reflexões Econômicas, V. 4. n. 1. https://doi.org/10.36113/rec.v4i1.2559
Martinez-Hernandez, F. A. (2017). The Political Economy of Real Exchange Rate Behavior: Theory and Empirical Evidence for Developed and Developing Countries, 1960-2010. Review of Political Economy, Vol. 29, Issue 4. P. 566-596. https://doi.org/10.1080/09538259.2017.1382060
Medeiros, S., and Trebat, N. (2016). Latin America at a Crossroads: Controversies on Growth, Income Distribution and Structural Change. Centro Sraffa Working Papers n. 22. ISSN: 2284-2845. http://www.centrosraffa.org/public/92b7983b-d2c5-40db-8062-b898c3e56152.pdf
Missio, F., Azevedo Araujo, R., and Jayme, F. (2017). Endogenous elasticities and the impact of the real exchange rate on structural economic dynamics. Structural Change and Economic Dynamics, Vol 42 (C). September, P. 67-75 http://dx.doi.org/10.1016/j.strueco.2017.06.002
Missio, F., Jayme, F., Britto, G., and Oreiro, J. (2015). Real Exchange Rate and Economic Growth: New Empirical Evidence. Metroeconomica, Vol 66, Issue 4: 686-714. https://doi.org/10.1111/meca.12087
Pesaran, M. H. and Zhao, Z. (1998). Bias Reduction in Estimating Long-run Relationships from Dynamic Heterogenous Panels. Cambridge Working Papers in Economics 9802 available at https://ideas.repec.org/p/cam/camdae/9802.html
Polterovich, V. and Popov, V. (2003). Accumulation of Foreign Exchange Reserves and Long-Term Growth. NES working paper. Available at SSRN: https://dx.doi.org/10.2139/ssrn.1751866
Razmi, A., Rappetti, M., and Skott, P. (2009). The Real Exchange Rate as an Instrument of Development Policy. UMASS working papers 2009-07. Available at https://ideas.repec.org/p/ums/papers/2009-07.html
Ribeiro, McCombie, and Tadeu-Lima (2016). Exchange Rate, Income Distribution and Technical Change in a Balance-of-Payments Constrained Growth Model. Review of Political Economy. Vol. 28, No. 4, 545-565. https://doi.org/10.1080/09538259.2016.1205819
Rodrik, D. (2008). The Real Exchange Rate and Economic Growth. Brookings papers on Economic Activity, Fall, 365-412, September. https://doi.org/10.1353/eca.0.0020
Shaikh, A. (2016). Capitalism: Competition, Conflict, Crises. New York: Oxford University Press.
Shaikh, A. (2012). Three Balances and Twin Deficits: Godley versus Ruggles and Ruggles. in D. Papadimitriou and G. Zezza, eds., Contributions in Stock-Flow Modeling, Essays in Honor to Wynne Godley: 125-136. London: Palgrave Macmillan. https://doi.org/10.1057/9780230367357_6
Stock, J. and Watson, M. (2015). Introduction to Econometrics. 3er. Ed. New York: Pearson.
UNCTAD. Trade and Development Report (2018). Power, Platforms and the Free Trade Delusion. New York: United Nations.
UNCTAD. Trade and Development Report (2020). From Global Pandemic to Prosperity for all: Avoiding another Lost Decade. New York: United Nations.
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Publicado
2021-05-03
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Martínez Hernández, F. A., & Sauri Alpuche, G. E. (2021). Real Exchange Rate and Aggregate Demand: Empirical Evidence, 1981-2010. Análisis Económico, 36(92), 5–28. https://doi.org/10.24275/uam/azc/dcsh/ae/2021v36n92/Martinez
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