Haddad, MonaPancaro, Cosimo2012-08-132012-08-132010-06https://hdl.handle.net/10986/10178A policy of managed real undervaluation may have been an important factor behind the success of East Asia's export-led growth model. But current discussions over the value of China's currency demonstrate the controversy this kind of policy can generate. Although a managed real undervaluation can enhance domestic competitiveness, it is difficult to sustain both economically and politically in the post-crisis environment. The authors show that a real undervaluation works only for low-income countries, and only in the medium term.CC BY 3.0 IGOACCOUNTINGADJUSTMENT COSTSADVANCED ECONOMIESANNUAL GROWTHCAPITA GROWTHCAPITA INCOMECAPITAL ACCOUNTCAPITAL ACCUMULATIONCAPITAL CONTROLSCAPITAL INFLOWSCAPITAL OUTFLOWSCENTRAL BANKCOMPETITIVE REAL EXCHANGE RATECOMPETITIVENESSCOMPLEMENTARY FACTORSCONSOLIDATIONCURRENCYCURRENCY CRISESCURRENT ACCOUNTCURRENT ACCOUNT DEFICITSDEVALUATIONDEVALUATIONSDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDISTORTIONSDIVERSIFIED PORTFOLIOECONOMIC ACTIVITYECONOMIC GROWTHECONOMIC PERFORMANCEECONOMIC POLICYECONOMIC RESEARCHEMPIRICAL EVIDENCEEQUILIBRIUMEXCHANGE RATE DEPRECIATIONEXCHANGE RATE DEVALUATIONSEXCHANGE RATE EXPECTATIONSEXCHANGE RATE INSTABILITYEXCHANGE RATE REGIMEEXCHANGE RATE VARIABILITYEXCHANGE-RATEEXPENDITURESEXPORT VOLUMESFINANCIAL CRISISFINANCIAL DEVELOPMENTFINANCIAL INSTABILITYFINANCIAL INSTRUMENTSFINANCIAL MARKETSFINANCIAL SECTORFINANCIAL SECTOR DEVELOPMENTFINANCIAL SYSTEMSFIXED EFFECTSFOREIGN EXCHANGEFOREIGN EXCHANGE MARKETSFOREIGN RESERVEFOREIGN RESERVESGROWTH MODELIMPLICIT TAXINCOME GROWTHINCOME LEVELSINDUSTRIALIZED COUNTRIESINFLATIONINTEREST RATEINTEREST RATE VOLATILITYINTERNATIONAL ECONOMICSINTERNATIONAL FINANCIAL MARKETSINTERNATIONAL MONETARY FUNDINTERNATIONAL MONEYINVESTMENT HORIZONSLEVYLIBERALIZATIONLIBERALIZATION OF CAPITALLIQUIDITYLONG RUNLONG TERMLOW-INCOME COUNTRIESMACROECONOMIC STABILITYMARKET FAILURESMARKET FORCESMEDIUM TERMMISALIGNMENTSMONETARY ECONOMICSMONETARY POLICYNEGATIVE EFFECTNEGATIVE IMPACTNOMINAL DEPRECIATIONNOMINAL EXCHANGE RATEOPEN CAPITAL ACCOUNTOPEN ECONOMIESOVERVALUATIONPER CAPITA GROWTHPER CAPITA INCOMEPER CAPITA INCOMESPOLICY INSTRUMENTSPOLICY INTERVENTIONPOLICY MAKERSPOLICY RESEARCHPOVERTY REDUCTIONPRIVATE INVESTMENTPURCHASING POWERPURCHASING POWER PARITYREAL DEVALUATIONREAL EXCHANGEREAL EXCHANGE RATEREAL EXCHANGE RATE MISALIGNMENTSREAL EXCHANGE RATE OVERVALUATIONREAL EXCHANGE RATE VOLATILITYRELATIVE PRICERELATIVE PRICESRESERVERESERVE ACCUMULATIONRESERVESRETURNSIGNIFICANT EFFECTSTANDARD DEVIATIONSUSTAINABLE GROWTHSUSTAINED GROWTHTRADABLE GOODSUNCERTAINTYWORLD ECONOMYWorld Bank10.1596/10178