Government spending and the real exchange rate: a cross-country perspective

There is no consensus about the economic implications of real exchange rate (RER) misalignments. Some authors argue that keeping the real exchange rate away from its equilibrium level creates distortions in the relative prices of tradable and nontradable goods generating misleading signals to econom...

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Autores principales:	Caputo, Rodrigo, Fuentes D., Miguel
Formato:	Artículo
Lenguaje:	eng
Publicado:	Banco Central de Chile 2019
Materias:	TIPO DE CAMBIO GASTOS PÚBLICOS
Acceso en línea:	https://hdl.handle.net/20.500.12580/3890
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spelling	oai-20.500.12580-38902021-04-24T11:16:43Z Government spending and the real exchange rate: a cross-country perspective Caputo, Rodrigo Fuentes D., Miguel TIPO DE CAMBIO GASTOS PÚBLICOS There is no consensus about the economic implications of real exchange rate (RER) misalignments. Some authors argue that keeping the real exchange rate away from its equilibrium level creates distortions in the relative prices of tradable and nontradable goods generating misleading signals to economic agents (Edwards 1989). This in turn induces a suboptimal allocation of resources across sectors that has a negative impact on growth. Others argue that sustained RER overvaluations are an early warning indicator of possible currency crashes (Krugman 1979 Frankel and Rose 1996 Kaminsky and Reinhart 1999). Furthermore large and medium RER overvaluations can end abruptly with nominal devaluations that lead to a drastic adjustment of relative prices and a decline in the aggregate growth rate of the economy (Goldfajn and Valdés 1999 Aguirre and Calderón 2005). On the other hand Rodrik (2008) argues that in the presence of institutional and market failures sustained RER depreciations increase the relative profitability of investing in tradables and act in second-best fashion to alleviate the economic cost of these distortions. That is why episodes of undervaluation are strongly associated with higher economic growth. 2019-11-01T00:05:49Z 2019-11-01T00:05:49Z 2013 Artículo 978-956-7421-37-4 https://hdl.handle.net/20.500.12580/3890 eng Series on Central Banking Analysis and Economic Policies no. 17 Attribution-NonCommercial-NoDerivs 3.0 Chile http://creativecommons.org/licenses/by-nc-nd/3.0/cl/ .pdf Sección o Parte de un Documento p. 93-116 application/pdf Banco Central de Chile
institution	Banco Central
collection	Banco Central
language	eng
topic	TIPO DE CAMBIO GASTOS PÚBLICOS
spellingShingle	TIPO DE CAMBIO GASTOS PÚBLICOS Caputo, Rodrigo Fuentes D., Miguel Government spending and the real exchange rate: a cross-country perspective
description	There is no consensus about the economic implications of real exchange rate (RER) misalignments. Some authors argue that keeping the real exchange rate away from its equilibrium level creates distortions in the relative prices of tradable and nontradable goods generating misleading signals to economic agents (Edwards 1989). This in turn induces a suboptimal allocation of resources across sectors that has a negative impact on growth. Others argue that sustained RER overvaluations are an early warning indicator of possible currency crashes (Krugman 1979 Frankel and Rose 1996 Kaminsky and Reinhart 1999). Furthermore large and medium RER overvaluations can end abruptly with nominal devaluations that lead to a drastic adjustment of relative prices and a decline in the aggregate growth rate of the economy (Goldfajn and Valdés 1999 Aguirre and Calderón 2005). On the other hand Rodrik (2008) argues that in the presence of institutional and market failures sustained RER depreciations increase the relative profitability of investing in tradables and act in second-best fashion to alleviate the economic cost of these distortions. That is why episodes of undervaluation are strongly associated with higher economic growth.
format	Artículo
author	Caputo, Rodrigo Fuentes D., Miguel
author_facet	Caputo, Rodrigo Fuentes D., Miguel
author_sort	Caputo, Rodrigo
title	Government spending and the real exchange rate: a cross-country perspective
title_short	Government spending and the real exchange rate: a cross-country perspective
title_full	Government spending and the real exchange rate: a cross-country perspective
title_fullStr	Government spending and the real exchange rate: a cross-country perspective
title_full_unstemmed	Government spending and the real exchange rate: a cross-country perspective
title_sort	government spending and the real exchange rate: a cross-country perspective
publisher	Banco Central de Chile
publishDate	2019
url	https://hdl.handle.net/20.500.12580/3890
work_keys_str_mv	AT caputorodrigo governmentspendingandtherealexchangerateacrosscountryperspective AT fuentesdmiguel governmentspendingandtherealexchangerateacrosscountryperspective
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Government spending and the real exchange rate: a cross-country perspective

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