Exchange Rate Misalignment and Growth : A Myth?

The impact of real exchange rate movements on GDP growth is a hotly debated issue bothin policy and academic circles. In this paper, we provide evidence suggesting that theassociation between exchange rate misalignment and growth for a broad panel ofcountries is very weak. Controlling for country fixed effects, time effects and initial GDP,a more depreciated currency is associated with higher growth if one does not excludeoutliers. However, this positive association always vanishes after controling for thesavings rate. Importantly, this applies for both a large panel of countries and for theemerging economies subsample