Real Exchange Rates and Growth: Contractionary Depreciations or Appreciations?

Date

2021-01-01

Author

Özmen, Erdal
YOLCU KARADAM, DUYGU

Metadata

Show full item record

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Item Usage Stats

115
views

0
downloads

This study investigates the impact of real exchange rates (RER) on growth of a large number of advanced (AE) and developing economies (DE) estimating conventional growth models augmented with global financial conditions variables. First of all, replicating Rodrik (2008) and following studies employing panel autoregressive distributed lag (PARDL) and PARDL mean group (PARDL-MG) models, we show that the expansionary depreciation findings for DE are often based on a misinterpretation of an error correction mechanism coefficient. Then, we investigate the relationship between RER and growth explicitly taking into account balance sheet or external debt vulnerabilities which often do not considered by conventional growth literature. Fully-Modified OLS estimation results show that, the external variables demonstrating global financial and monetary conditions are strongly significant in explaining growth in DE along with the conventional domestic variables including trade openness, human capital and savings. Furthermore, our results suggest that, RER depreciations are contractionary for DE with high external debt and expansionary for AE. However, higher trade openness decreases the contractionary impact of depreciations in both AE and DE. These results are robust for different RER and real income measures.

Subject Keywords

Balance Sheets, Developing Economies, Growth, Real Exchange Rates, Panel Data, BUSINESS CYCLES, UNDERVALUATION, SPREADS, TESTS, FEAR

URI

https://hdl.handle.net/11511/100113

Journal

Ege Akademik Bakış

DOI

https://doi.org/10.21121/eab.907399

Collections

Department of Economics, Article

Suggestions

OpenMETU
Core

Exchange Rate Regimes and Business Cycles: An Empirical Investigation Erdem, Fatma Pinar; Özmen, Erdal (2015-11-01) This paper empirically investigates the impacts of domestic and external factors along with exchange rate regimes (ERRs) on business cycles in a large panel of advanced and emerging market economies (EME). The results for classical business cycles suggest that EME tend to experience much deeper recessions and relatively steeper expansions during almost the same duration. The probability of expansions significantly increases with ERR flexibility. Our results strongly support floating ERR for both advanced an...
Demand following or supply leading? A panel data analysis for developed, developing, and less developed countries Akıncı, Gönül Yüce; Akıncı, Merter; Yılmaz, Ömer (Orta Doğu Teknik Üniversitesi (Ankara, Turkey), 2013-12-1) In this paper, the linkages between financial development and economic growth in developed, developing and less developed countries are investigated using unbalanced panel cointegration and causality analysis in the period of 1980 – 2011. The results of the Pedroni cointegration analysis show the existence of cointegration relations between financial development and economic growth for whole country groups, but Kao cointegration analysis indicates the long – run relationship between the related variables fo...
Nonlinear models for UK macroeconomic time series Ocal, N (2000-09-01) This paper examines possible nonlinearities in growth rates of nine U.K. macroeconomic time series, namely gross domestic product, price, consumption, retail sales, personal disposable income, savings, investment, industrial production and unemployment, chosen as representative of series typically used to investigate business cycle fluctuations. By basing analysis on the class of smooth-transition autoregressive (STAR) models, it is assumed that the economy can be in one of two states with distinct dynamics...
Financial development and energy consumption in emerging markets: structural shifts in causal linkages Durusu Çiftçi, Dilek; Soytaş, Uğur; Nazlıoğlu, Şaban (null; 2018-11-03) This study examines dynamic causal interrelationships among financial development, energy consumption, and economic growth in the emerging markets by focusing on accounting for structural changes in causal linkages. We first employ the Toda-Yamamoto causality framework and later augment it with Fourier approximation to account for structural shifts – including gradual/smooth shifts. The empirical findings show that accounting for gradual structural shifts matter for the causal linkages between financial dev...
Financial development and energy consumption in emerging markets: Smooth structural shifts and causal linkages Durusu-Ciftci, Dilek; Soytaş, Uğur; NAZLIOĞLU, ŞABAN (Elsevier BV, 2020-03-01) This study examines the dynamic interrelationships among financial development, energy consumption, and economic growth in emerging markets by focusing on accounting for structural changes in causal linkages. We first employ the Toda-Yamamoto causality framework and then augment it with a Fourier approximation which captures structural shifts as a gradual/smooth process. The empirical findings show that taking into account gradual structural shifts matters for the causal linkages between financial developme...

Citation Formats

E. Özmen and D. YOLCU KARADAM, “Real Exchange Rates and Growth: Contractionary Depreciations or Appreciations?,” Ege Akademik Bakış, vol. 21, no. 2, pp. 111–123, 2021, Accessed: 00, 2022. [Online]. Available: https://hdl.handle.net/11511/100113.