NATIONAL BUREAU OF ECONOMIC RESEARCH
Jose Antonio Ocampo
New York, NY 10027
NBER Working Papers and Publications
|September 2017||Real Exchange Rate Policies for Economic Development|
with Martin Guzman, Joseph E. Stiglitz: w23868
This paper analyzes the role of real exchange rate (RER) policies in promoting economic development. Markets provide a suboptimal amount of investment in sectors characterized by learning spillovers. We show that a stable and competitive RER policy may correct for this externality and other related market failures. The resulting development of these sectors leads to overall faster economic growth. A system of effectively multiple exchange rates is required when spillovers across different tradable sectors differ. The impact of RER policies is increased when they are complemented by traditional industrial policies that increase the elasticity of the aggregate supply to the RER. Among the instruments required to implement a stable and competitive RER are interventions in the foreign exchan...