Real Exchange Rates, Saving And Growth : Is There A Link?

Abstract

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The Effects of Financial Innovation on Financial Savings: Evidence From an Economy in Transition

“…As hypothesized, due to the fact that the Ghana cedi consistently depreciated against the U.S. dollar, its major trading foreign currency, the exchange rate had a positive correlation with savings. This is consistent with the findings of Montiel & Luis (2008), who claimed that a depreciated real exchange rate raises the domestic saving rate, which in turn stimulates growth by increasing the rate of capital accumulation.…”

“…According to Montiel & Luis (2008), 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. Due to the fact that the Ghana cedi consistently depreciated over the study period against its major trading foreign currency, the US dollar, exchange rate is expected to have a positive correlation with savings.…”

Revisiting the nexus between currency misalignments and growth in the CFA Zone

“…In the same vein, Gluzmann et al (2011) suggest that undervaluation fosters growth by the channel of savings and investment rather than foreign trade dynamics: an undervalued exchange rate tends to increase the investment and the domestic saving rate, which in turn stimulate growth by increasing the rate of capital accumulation. Regarding the saving rate channel, Montiel and Servén (2008) do not support this conclusion. Drawing from standard analytical models, stylized facts on saving and real exchange rates, and existing empirical research on saving determinants, they assess the link between the real exchange rate and saving.…”

“…But, as Montiel and Servén (2008) emphasized, the literature addressing the issue of the channel through which the real exchange rate impacts growth is in its infancy, and there is no consensus on the precise channels through which effects are generated.…”

12. The Real Exchange Rate and Economic Growth: Some Observations on the Possible Channels

“…The main weakness of the "saving channel" is theoretical: it is unclear how higher levels of the RER would affect growth via changes in the saving rate. Using an inter-temporal optimization framework, Montiel and Serven (2009) Blecker, 1989), in which it is shown that both expansionary and contractionary cases are possible.…”