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Real Exchange Rates, Valuation Effects and Growth in Emerging Markets

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  • Michael Bleaney,
  • Liliana Castilleja Vargas

Abstract

We compare the relationship between net capital inflows, real exchange rate movements and growth for twenty emerging markets and thirteen developed countries over the period 1985-2004. In developed countries low real exchange rates are associated with faster growth, but in emerging markets depreciations depress growth, even outside crisis periods, and are closely correlated with declines or reversals in net capital inflows. To investigate valuation effects of currency movements, we construct debt-weighted real exchange rate indices for emerging markets. We find only limited evidence that the contractionary effects of real depreciations in emerging markets can be attributed to valuation effects.

Suggested Citation

  • Michael Bleaney, & Liliana Castilleja Vargas, 2007. "Real Exchange Rates, Valuation Effects and Growth in Emerging Markets," Discussion Papers 07/12, University of Nottingham, CREDIT.
    • Handle: RePEc:not:notcre:07/12
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    Cited by:

    1. Fatma Erdem & Erdal Özmen, 2015. "Exchange Rate Regimes and Business Cycles: An Empirical Investigation," Open Economies Review, Springer, vol. 26(5), pages 1041-1058, November.
    2. Kenza Benhima, 2012. "Exchange Rate Volatility and Productivity Growth: The Role of Liability Dollarization," Open Economies Review, Springer, vol. 23(3), pages 501-529, July.
    3. Ashima Goyal & Vaishnavi Sharma, 2018. "Portfolio Composition and Valuation Effects in Emerging Market Economies," International Economic Journal, Taylor & Francis Journals, vol. 32(3), pages 307-330, July.
    4. Phouphet Kyophilavong & Muhammad Shahbaz & Thongphet Lamphayphan & Byoungki Kim & Michael C. S. Wong, 2019. "Are Devaluations Expansionary in Laos?," Global Business Review, International Management Institute, vol. 20(1), pages 72-83, February.
    5. Aguiar de Medeiros, Carlos & Trebat, Nicholas, 2016. "Latin America at a Crossroads: Controversies on Growth, Income Distribution and Structural Change," Centro Sraffa Working Papers CSWP22, Centro di Ricerche e Documentazione "Piero Sraffa".
    6. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, vol. 13(2), pages 159-183.

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    More about this item

    Keywords

    Capital flows; real exchange rates; growth; emerging markets;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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