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Call for Papers: PIER Research Workshop 2025
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10 February 2016
20161455062400000
No. 018

Currency Wars: Who Gains from the Battle?

Phornchanok Cumperayot KouwenbergRoy Kouwenberg

Abstract

We study the growth effects of currency undervaluation when countries employ active exchange rate management policies or impose capital controls, using a panel dataset of 185 countries. Applying two-stage regressions, we find that changes in undervaluation driven by exchange rate management and capital control policies have no significant impact on economic growth. Undervaluation that leads to higher growth mainly stems from policies that lower government consumption, reduce inflation and increase domestic savings. However, these policies are good for growth by themselves, with only limited additional growth effects through increased currency undervaluation. In sum, we find no evidence that battling in the currency depreciation war significantly increases a country's growth rate.

Phornchanok Cumperayot Kouwenberg
Phornchanok Cumperayot Kouwenberg
Chulalongkorn University
Roy Kouwenberg
Mahidol University
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JEL: F31F43F49
Tags: real exchange rate misalignmentgrowthundervaluation
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Phornchanok Cumperayot Kouwenberg
Phornchanok Cumperayot Kouwenberg
Chulalongkorn University
Roy Kouwenberg
Mahidol University

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