Real Exchange Rates, Saving, and Growth : Is There a Link?

The view that policies directed at the real exchange rate can have an important effect on economic growth has been gaining adherents in recent years. Unlike the traditional 'misalignment' view that temporary departures of the real exchange rate from its equilibrium level harm growth by distorting a key relative price in the economy, the recent literature stresses the growth effects of the equilibrium real exchange rate itself, with the claim being that a depreciated equilibrium real exchange rate promotes economic growth. While there is no consensus on the precise channels through which this effect is generated, an increasingly common view in policy circles points to saving as the channel of transmission, with the claim that a depreciated real exchange rate raises the domestic saving rate which in turn stimulates growth by increasing the rate of capital accumulation. This paper offers a preliminary exploration of this claim. Drawing from standard analytical models, stylized facts on saving and real exchange rates, and existing empirical research on saving determinants, the paper assesses the link between the real exchange rate and saving. Overall, the conclusion is that saving is unlikely to provide the mechanism through which the real exchange rate affects growth.

Bibliographic Details

Main Authors:	Montiel, Peter J., Servén, Luis
Format:	Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2009
Subjects:	AGGREGATE DEMAND, BALANCE OF PAYMENTS, BANK POLICY, BONDS, BUDGET CONSTRAINT, CAPITA INCOME, CAPITAL ACCUMULATION, CAPITAL FLOWS, CAPITAL GAINS, CAPITAL MOBILITY, CAPITAL MOVEMENTS, CAPITAL STOCK, CENTRAL BANK, COMPARATIVE ANALYSIS, CONSUMER CREDIT, CONSUMPTION EXPENDITURE, CONSUMPTION EXPENDITURES, CONSUMPTION LEVELS, CONSUMPTION SMOOTHING, CORPORATE PROFITS, CORPORATE SAVING, CURRENT ACCOUNT, CURRENT ACCOUNT BALANCE, CURRENT ACCOUNT DEFICIT, CURRENT ACCOUNT SURPLUSES, DEMAND FOR MONEY, DEMOGRAPHIC, DEVELOPING COUNTRIES, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DEVELOPMENT STRATEGY, DISEQUILIBRIUM, DISPOSABLE INCOME, DIVIDENDS, DOLLAR PRICE, DOLLAR PRICES, DOMESTIC CAPITAL, DOMESTIC COMPETITION, DOMESTIC ECONOMY, DOMESTIC INFLATION, DOMESTIC MARKETS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC POLICY, ECONOMIC REFORM, ECONOMIC RESEARCH, ECONOMIC REVIEW, EMPIRICAL EVIDENCE, EMPIRICAL STUDIES, ENDOGENOUS VARIABLES, ENVIRONMENTAL BENEFITS, EQUILIBRIUM, EQUILIBRIUM VALUE, EQUILIBRIUM VALUES, EXCESS DEMAND, EXCESS SUPPLY, EXCHANGE RATE DEPRECIATION, EXCHANGE RATE POLICIES, EXCHANGE RATE POLICY, EXCHANGE RATE REGIMES, EXCHANGE RATE SYSTEM, EXOGENOUS SHOCKS, EXOGENOUS VARIABLES, FEDERAL RESERVE, FEDERAL RESERVE BANK, FINANCIAL DEVELOPMENT, FINANCIAL INSTITUTION, FINANCIAL MARKETS, FINANCIAL REFORM, FINANCIAL SAVING, FINANCIAL SECTOR, FINANCIAL SECTOR STABILITY, FINANCIAL STRUCTURE, FINANCIAL SYSTEM, FINANCIAL SYSTEMS, FINANCIALLY OPEN ECONOMIES, FISCAL POLICIES, FISCAL POLICY, FIXED EXCHANGE RATE, FOREIGN FINANCING, FORMAL FINANCIAL SECTOR, FUTURE GROWTH, GDP, GDP DEFLATOR, GDP PER CAPITA, GLOBAL ECONOMY, GLOBALIZATION, GNP, GROWTH RATE, GROWTH RATE OF INCOME, GROWTH RATES, HIGH INFLATION, HOLDING, HOLDINGS, HOUSEHOLD INCOME, HOUSEHOLD SAVING, HOUSEHOLD SAVING RATE, INCOME DISTRIBUTION, INCOME LEVEL, INCOME LEVELS, INCOMES, INDUSTRIAL COUNTRIES, INFLATION RATE, INSTRUMENT, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL BORROWING, INTERNATIONAL CAPITAL, INTERNATIONAL CAPITAL FLOWS, INTERNATIONAL DEVELOPMENT, INTERNATIONAL ECONOMICS, INTERNATIONAL EXPERIENCE, INTERNATIONAL FINANCIAL MARKETS, INTERNATIONAL INVESTMENT, INTERNATIONAL MONETARY FUND, INTERNATIONAL PORTFOLIO, INVESTMENT RATES, LIQUIDITY, LIQUIDITY CONSTRAINTS, LONG TERM, LOW-INCOME COUNTRIES, MACRO STABILITY, MACROECONOMIC ANALYSIS, MACROECONOMIC ENVIRONMENT, MACROECONOMIC IMPACT, MACROECONOMIC MANAGEMENT, MACROECONOMIC MODELS, MACROECONOMIC PERFORMANCE, MACROECONOMIC POLICY, MACROECONOMICS, MARGINAL UTILITY, MONETARY FUND, NATIONAL SAVING, NATURAL RESOURCES, NOMINAL EXCHANGE RATE, NOMINAL INTEREST RATE, NPL, OLD AGE CRISIS, OPEN ECONOMIES, OPEN ECONOMY, OPPORTUNITY COST, OUTPUT, OVERVALUATION, PENSION, PER CAPITA INCOME, PERMANENT INCOME, POLITICAL ECONOMY, POLITICAL ECONOMY OF REFORM, PORTFOLIO DIVERSIFICATION, POSITIVE EFFECTS, POSTAL SAVING, POVERTY REDUCTION, PRIVATE CONSUMPTION, PRIVATE INFRASTRUCTURE, PRIVATE SAVING, PRODUCTIVITY, PRODUCTIVITY GROWTH, PROVIDENT FUND, PROVIDENT FUNDS, PUBLIC ECONOMICS, PUBLIC POLICY, PUBLIC SAVING, PUBLIC SECTOR, RAPID ECONOMIC GROWTH, RAPID GROWTH, RATE OF GROWTH, RATE OF INFLATION, RATE OF INVESTMENT, RATE TARGETING, REAL APPRECIATION, REAL EXCHANGE, REAL EXCHANGE RATE, REAL EXCHANGE RATE VOLATILITY, REAL EXCHANGE RATES, REAL INCOME, REAL INTEREST, REAL INTEREST RATE, REAL INTEREST RATES, REAL WAGES, RELATIVE PRICE, RESERVE, RESTRICTIONS ON ENTRY, RETURN, RISK PREMIUM, SAVING RATES, SAVINGS, SAVINGS RATES, SMALL SAVERS, STABLE INFLATION, SUSTAINED GROWTH, TAX, TAX INCENTIVES, TRADE BALANCE, TRADING, TRANSACTION, TRANSACTION COSTS, TRANSACTIONS COSTS, UTILITY FUNCTION, WEALTH,
Online Access:	http://documents.worldbank.org/curated/en/894531468151502121/Real-exchange-rates-saving-and-growth-is-there-a-link http://hdl.handle.net/10986/27929
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