Currency Wars: Who Gains from the Battle?

44 Pages Posted: 12 Jan 2016

See all articles by Phomchanok Cumperayot

Phomchanok Cumperayot

Chulalongkorn University

Roy Kouwenberg

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Mahidol University - College of Management

Date Written: January 12, 2016

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.

Keywords: Real exchange rate misalignment, Growth, Undervaluation

JEL Classification: F31, F43, F49

Suggested Citation

Cumperayot, Phomchanok and Kouwenberg, Roy R. P., Currency Wars: Who Gains from the Battle? (January 12, 2016). Available at SSRN: https://ssrn.com/abstract=2714277 or http://dx.doi.org/10.2139/ssrn.2714277

Phomchanok Cumperayot (Contact Author)

Chulalongkorn University ( email )

Faculty of Economics
Bangkok 10330
Thailand

Roy R. P. Kouwenberg

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

HOME PAGE: http://people.few.eur.nl/kouwenberg

Mahidol University - College of Management ( email )

69 Vipawadee Rangsit Road
Bangkok, 10400
Thailand

HOME PAGE: http://www.cmmu.mahidol.ac.th/main/faculty/aroy.asp

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