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Missing: A correlation between exchange rate misalignment and GDP growth

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  • Carlos Goncalves
  • Mauro Rodrigues

Abstract

The impact of real exchange rate movements on growth is a hotly debated issue in policy and academic circles. We provide evidence that this association is very weak for a broad panel of countries. Controlling for initial GDP, country and time fixed effects, a more depreciated currency is associated with higher growth only if the savings rate is not included as a control. Further, even if the latter is not added to the estimation, the correlation becomes insignificant when outliers or very small countries are left out. Importantly, this also holds for the specific subsample of emerging economies.

Suggested Citation

  • Carlos Goncalves & Mauro Rodrigues, 2023. "Missing: A correlation between exchange rate misalignment and GDP growth," Review of International Economics, Wiley Blackwell, vol. 31(5), pages 1602-1615, November.
    • Handle: RePEc:bla:reviec:v:31:y:2023:i:5:p:1602-1615
    DOI: 10.1111/roie.12679
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