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

@inproceedings{Magud2013WhenAW,
  title={When and Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease and Growth},
  author={Nicolas E Magud and Sebastian Sosa},
  year={2013}
}
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… CONTINUE READING

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