Publication detail

Exchange rate misalignments, growth, and institutions

Author(s): PhDr. Jaromír Baxa Ph.D.,
Mgr. Michal Paulus ,
Type: IES Working Papers
Year: 2020
Number: 27
Published in: IES Working Papers 27/2020
Publishing place: Prague
Keywords: exchange rate misalignments, undervaluation, economic growth, institutions, corruption
JEL codes: F43, F31, 043
Suggested Citation: Baxa J. and Paulus M. (2020): “Exchange rate misalignments, growth, and institutions” IES Working Papers 27/2020. IES FSV. Charles University.
Abstract: In this paper, we revisit the relationship between economic growth and exchange rate misalignments, especially undervaluations. In particular, we ask which countries benefit from undervaluations at most, and whether the impact of undervaluations on growth depends on institutional quality as suggested in previous literature. First, we separate countries into groups according to their institutional quality using the cluster analysis. Then, we estimate the relationship between growth and exchange rate misalignment while allowing for variation in coefficients across these clusters. Our results confirm the positive relationship between undervaluation and growth, and this relationship is the highest for countries with the highest quality of institutions rather than with a poor level of institutional quality. Therefore, our results reconcile the importance of good institutions and do not support the hopes that the countries can compensate for the poor institutional quality via undervaluation of currencies successfully.
Downloadable: wp_2020_26_baxa_paulus




Patria Finance