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Oh, RER'ly? Effects of Real Exchange Rate Misalignments on Economic Modernization

Landén Helmbold, Nils LU (2014) NEKH01 20132
Department of Economics
Abstract
The role of the real exchange rate in an economy’s modernization process is an ambiguous matter and is not essential in the canonical models of neo-classical growth theory. This thesis tries to determine the role of the real exchange rate in a modernization process for Chile, Brazil and the Republic of Korea by applying the theory of a dual-sector approach to economic development by Lewis. By estimating individual equilibrium real exchange rates from 1970-2007, the methodology differ from recent literature on the subject which has focused on non-desirable homogenous assumptions between countries for estimating equilibrium real exchange rates. The results indicate that undervaluation fosters reallocation towards the modern sector of the... (More)
The role of the real exchange rate in an economy’s modernization process is an ambiguous matter and is not essential in the canonical models of neo-classical growth theory. This thesis tries to determine the role of the real exchange rate in a modernization process for Chile, Brazil and the Republic of Korea by applying the theory of a dual-sector approach to economic development by Lewis. By estimating individual equilibrium real exchange rates from 1970-2007, the methodology differ from recent literature on the subject which has focused on non-desirable homogenous assumptions between countries for estimating equilibrium real exchange rates. The results indicate that undervaluation fosters reallocation towards the modern sector of the economy, whereas overvaluation hampers the reallocation. No significant results could however be determined for the Republic of Korea. (Less)
Please use this url to cite or link to this publication:
author
Landén Helmbold, Nils LU
supervisor
organization
course
NEKH01 20132
year
type
M2 - Bachelor Degree
subject
keywords
Real exchange rate, Equilibrium real exchange rate, Economic development, Lewis model, Modernization
language
English
id
4250172
date added to LUP
2014-02-11 13:08:22
date last changed
2014-02-11 13:08:22
@misc{4250172,
  abstract     = {{The role of the real exchange rate in an economy’s modernization process is an ambiguous matter and is not essential in the canonical models of neo-classical growth theory. This thesis tries to determine the role of the real exchange rate in a modernization process for Chile, Brazil and the Republic of Korea by applying the theory of a dual-sector approach to economic development by Lewis. By estimating individual equilibrium real exchange rates from 1970-2007, the methodology differ from recent literature on the subject which has focused on non-desirable homogenous assumptions between countries for estimating equilibrium real exchange rates. The results indicate that undervaluation fosters reallocation towards the modern sector of the economy, whereas overvaluation hampers the reallocation. No significant results could however be determined for the Republic of Korea.}},
  author       = {{Landén Helmbold, Nils}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Oh, RER'ly? Effects of Real Exchange Rate Misalignments on Economic Modernization}},
  year         = {{2014}},
}