When and Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease and Growth PDF Download

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When and Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease and Growth

When and Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease and Growth PDF Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1455210781
Category : Business & Economics
Languages : en
Pages : 34

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Book Description
We review the literature on Dutch disease, and document that shocks that trigger foreign exchange inflows (such as natural resource booms, surges in foreign aid, remittances, or capital inflows) appreciate the real exchange rate, generate factor reallocation, and reduce manufacturing output and net exports. We also observe that real exchange rate misalignment due to overvaluation and higher volatility of the real exchange rate lower growth. Regarding the effect of undervaluation of the exchange rate on economic growth, the evidence is mixed and inconclusive. However, there is no evidence in the literature that Dutch disease reduces overall economic growth. Policy responses should aim at adequately managing the boom and the risks associated with it.