Devaluing to Prosperity: Misaligned Currencies and Their Growth Consequence

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Peterson Institute, 2012 - Business & Economics - 263 pages
Experts have long questioned the effect of currency undervaluation on overall GDP growth. They have viewed the underlying basis for this policy--intervention in currency markets to keep the price of the home currency cheap--as doomed to failure on both theoretical and empirical grounds. Moreover, the view has been that overvalued currencies hurt economic growth but undervalued currencies cannot help in growth acceleration. A parallel belief has been that the real exchange rate--that is, a country's competitive ranking--cannot be affected by merely changing the nominal exchange rate. This view is grounded in the belief, and expectation, that inflation follows any devaluation of currency. Hence, the conclusion that the real exchange rate cannot be affected by policy. However, given China's remarkable performance in recent decades, this traditional view is being reexamined. China devalued its currency by large amounts in the 1980s and early 1990s; instead of inflation, it achieved high growth. Today, there is near-universal demand for China to significantly revalue its currency.

This book examines the veracity of various propositions relating to currency misalignments, and their effect on various items of policy interest. The author subjects more than a century of global exchange rate management and growth outcomes to rigorous empirical analysis and demonstrates convincingly that a country can systematically devalue and yet prosper. The analysis helps in interpreting several phenomena, especially for the last three decades, which have witnessed high economic growth in developing countries, a widening of global imbalances, and a sharp increase in reserve accumulation, particularly among high-growth Asian economies. The book shows that these events are strongly linked via a consistent policy of currency undervaluation in Asian economies.


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there is need of another next publication of these legend book. This book have sufficient material to take overview and understanding about the Economy and its related working.


Ch 1 Introduction
Ch 2 Determinants of Economic Growth
Ch 3 Currency Valuation Savings and the Current Account
Ch 4 Measuring Currency Valuation
Ch 5 The Yin and Yang of Investment
Ch 6 Is the Real Exchange Rate Endogenous?
US Dollar Euro Dollar
Ch 8 Currency Valuation and Growth
Ch 11 Institutions versus Exchange Rate Policy
A TimeTested Policy for Growth
Ch 13 Economics of the Yen and the Renminbi
Ch 14 Changing Times Changing Views
Ch 15 Conclusion
Appendix A Data and Methods
Appendix B Bhalla 2007a Dataset Extended to 2011

Ch 9 Policy Failures and Growth Miracles
Ch 10 Mercantilism and Miracles

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About the author (2012)

Surjit S. Bhalla is managing director of Oxus Research and Investments, a New Delhi-based economic research, asset management, and emerging-markets advisory firm. He taught at the Delhi School of Economics and worked at the Rand Corporation, the Brookings Institution, and at both the research and treasury departments of the World Bank. He has also worked at Goldman Sachs (1992-94) and Deutsche Bank (1994-96).

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