The impact of real exchange rates adjustments on global imbalances: A multilateral approach

Abstract

An extensive literature stresses that currency misalignments are costly in terms of growth performance. However, these studies do not consider the direct and indirect effects of currenciesí misalignments on other countries. In this paper, we analyze how misalignments of the dollar, the euro, and the renminbi affect their respective economies and those of their trading partners using a multi-country dataset GVAR model. Our model includes 15 advanced and emerging countries and uses quarterly data spanning the period 1980-2010. We find that misalignments significantly influence the world economy. We show that overvaluation and undervaluation shocks do not produce the same effects.

System estimation of GVAR with two dominants and network theory: Evidence for BRICs

“…In the GVAR framework, it is widely accepted that the US could be considered as being a dominant economy in the model Chudik, and Pesaran (2013). Nevertheless, the use of US economy as the only dominant unit in the GVAR model is an ad-hoc approach that is, thus far, justified solely based on economic 2 For a thorough discussion on the BRIC economies and their complex dynamic interdependencies see inter alia Cakir and Kabundi (2013), Allegret and Sallenave (2014), and Dreger and Zhang (2014). To this end, in this paper we construct an upgraded compact (macro)econometricmodel that incorporates both the complex interdependencies that exist between the various economic entities and the fact that in the global economy more than one of these entities could have a predominant role.…”

The Impacts of the Dollar-Renminbi Exchange Rate Misalignment on the China-United States Commodity Trade: An Asymmetric Analysis

“…3 report evidence of a negative impact of a renminbi undervaluation on U.S. trade balance (Yang et al, 2013;Allegret and Sallenave, 2014).…”

“…A review of the literature 5 reveals that most studies dealing with the impacts of real exchange rate (RE) misalignment on trade flows of the United States with China (or other country studies) 6 have implicitly supposed that the impacts of RE misalignment on imports and exports are symmetric. A great number of recent empirical studies, however, suggests that the effects of RE misalignment on economic activity in general, and on trade flows in particular, are likely to be asymmetric (Béreauet al, 2012;Couharde, and Sallenave, 2013;Allegret and Sallenave, 2014;Tipoy and Zerihun, 2017;Wong, 2019;Cuestas et al, 2020). For example, Allegret and Sallenave (2014) estimated a GVAR model to assess the impacts of exchange rate misalignment on global imbalances for 15 developed and emerging economies using data for the 1980-2010 period.…”

“…A great number of recent empirical studies, however, suggests that the effects of RE misalignment on economic activity in general, and on trade flows in particular, are likely to be asymmetric (Béreauet al, 2012;Couharde, and Sallenave, 2013;Allegret and Sallenave, 2014;Tipoy and Zerihun, 2017;Wong, 2019;Cuestas et al, 2020). For example, Allegret and Sallenave (2014) estimated a GVAR model to assess the impacts of exchange rate misalignment on global imbalances for 15 developed and emerging economies using data for the 1980-2010 period. They concluded that exports and imports respond to exchange rate misalignment in an asymmetric fashion.…”

Κυκλικές Διακυμάνσεις Στη Διεθνή Οικονομία

“…For a thorough discussion on the BRIC economies and their complex dynamic interdependencies see inter aliaCakir and Kabundi (2013),Allegret and Sallenave (2014), andDreger and Zhang (2014).…”