The impact of real exchange rates adjustments on global imbalances: A multilateral approach |
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| Affiliation: | 1. EconomiX, UMR 7235 University of Paris Ouest Nanterre La Défense, France;2. LEAD, UFR Sciences Economiques et Gestion, University of Sud Toulon-Var, France;1. University of Catania, Department of Political and Social Sciences, Via V. Emanuele 8, 95100 Catania, Italy;2. Polytechnic University of Marche, Department of Economics and Social Sciences, Piazzale Martelli 8, 60121 Ancona, Italy;1. International Monetary Fund, Bank of Finland, Finland;2. University of Turku, Finland |
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| Abstract: | An extensive literature stresses that currency misalignments are costly in terms of growth performance. However, these studies do not consider the direct and indirect effects of currency misalignments on other countries. In this paper, we analyze how misalignments of the dollar, the euro, and the renminbi affect their respective economies and those of their trading partners using a multi-country dataset GVAR model. Our model includes 15 advanced and emerging countries and uses quarterly data spanning the period 1980–2010. We find that misalignments significantly influence the world economy. We show that overvaluation and undervaluation shocks do not produce the same effects. |
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