Exchange Rate Undervaluation to Foster Manufactured Exports: A Deliberate Strategy?

Abstract : Recent literature suggests that a proactive strategy consisting of deliberate real exchange rate depreciation can promote exports diversification and growth. This paper is built on these recent developments and investigates whether four developing countries have adopted such a strategy. Data from Egypt, Jordan, Morocco and Tunisia are used to construct and compare the macroeconomic Real Effective exchange rate (REER), similar exchange rates at the sector level (SREER) and the macroeconomic Equilibrium Real Effective exchange rate (EREER). It shows that there are instances where the objective of diversifying exports through depreciation of exchange rate comes at the expense of further misalignment (REER departs from the EREER) and, then, monetary authorities are doomed to choose. The results show that Morocco and Tunisia are choosing the proactive exchange rate strategy while Egypt and Jordan are not. This fits with the observation that the former are doing much better than the latter in terms of exports diversification.
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Submitted on : Thursday, January 6, 2011 - 4:14:11 PM
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Patrick Plane, Ridha Nouira, K. Sekkat. Exchange Rate Undervaluation to Foster Manufactured Exports: A Deliberate Strategy?. 2011. ⟨halshs-00553163⟩

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