Montiel, Peter J.Servén, Luis2017-08-172017-08-172009https://hdl.handle.net/10986/27929The view that policies directed at the real exchange rate can have an important effect on economic growth has been gaining adherents in recent years. Unlike the traditional 'misalignment' view that temporary departures of the real exchange rate from its equilibrium level harm growth by distorting a key relative price in the economy, the recent literature stresses the growth effects of the equilibrium real exchange rate itself, with the claim being that a depreciated equilibrium real exchange rate promotes economic growth. While there is no consensus on the precise channels through which this effect is generated, an increasingly common view in policy circles points to saving as the channel of transmission, with the claim that a depreciated real exchange rate raises the domestic saving rate which in turn stimulates growth by increasing the rate of capital accumulation. This paper offers a preliminary exploration of this claim. Drawing from standard analytical models, stylized facts on saving and real exchange rates, and existing empirical research on saving determinants, the paper assesses the link between the real exchange rate and saving. Overall, the conclusion is that saving is unlikely to provide the mechanism through which the real exchange rate affects growth.en-USCC BY 3.0 IGOAGGREGATE DEMANDBALANCE OF PAYMENTSBANK POLICYBONDSBUDGET CONSTRAINTCAPITA INCOMECAPITAL ACCUMULATIONCAPITAL FLOWSCAPITAL GAINSCAPITAL MOBILITYCAPITAL MOVEMENTSCAPITAL STOCKCENTRAL BANKCOMPARATIVE ANALYSISCONSUMER CREDITCONSUMPTION EXPENDITURECONSUMPTION EXPENDITURESCONSUMPTION LEVELSCONSUMPTION SMOOTHINGCORPORATE PROFITSCORPORATE SAVINGCURRENT ACCOUNTCURRENT ACCOUNT BALANCECURRENT ACCOUNT DEFICITCURRENT ACCOUNT SURPLUSESDEMAND FOR MONEYDEMOGRAPHICDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDEVELOPMENT STRATEGYDISEQUILIBRIUMDISPOSABLE INCOMEDIVIDENDSDOLLAR PRICEDOLLAR PRICESDOMESTIC CAPITALDOMESTIC COMPETITIONDOMESTIC ECONOMYDOMESTIC INFLATIONDOMESTIC MARKETSECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC POLICYECONOMIC REFORMECONOMIC RESEARCHECONOMIC REVIEWEMPIRICAL EVIDENCEEMPIRICAL STUDIESENDOGENOUS VARIABLESENVIRONMENTAL BENEFITSEQUILIBRIUMEQUILIBRIUM VALUEEQUILIBRIUM VALUESEXCESS DEMANDEXCESS SUPPLYEXCHANGE RATE DEPRECIATIONEXCHANGE RATE POLICIESEXCHANGE RATE POLICYEXCHANGE RATE REGIMESEXCHANGE RATE SYSTEMEXOGENOUS SHOCKSEXOGENOUS VARIABLESFEDERAL RESERVEFEDERAL RESERVE BANKFINANCIAL DEVELOPMENTFINANCIAL INSTITUTIONFINANCIAL MARKETSFINANCIAL REFORMFINANCIAL SAVINGFINANCIAL SECTORFINANCIAL SECTOR STABILITYFINANCIAL STRUCTUREFINANCIAL SYSTEMFINANCIAL SYSTEMSFINANCIALLY OPEN ECONOMIESFISCAL POLICIESFISCAL POLICYFIXED EXCHANGE RATEFOREIGN FINANCINGFORMAL FINANCIAL SECTORFUTURE GROWTHGDPGDP DEFLATORGDP PER CAPITAGLOBAL ECONOMYGLOBALIZATIONGNPGROWTH RATEGROWTH RATE OF INCOMEGROWTH RATESHIGH INFLATIONHOLDINGHOLDINGSHOUSEHOLD INCOMEHOUSEHOLD SAVINGHOUSEHOLD SAVING RATEINCOME DISTRIBUTIONINCOME LEVELINCOME LEVELSINCOMESINDUSTRIAL COUNTRIESINFLATION RATEINSTRUMENTINTEREST RATESINTERNATIONAL BANKINTERNATIONAL BORROWINGINTERNATIONAL CAPITALINTERNATIONAL CAPITAL FLOWSINTERNATIONAL DEVELOPMENTINTERNATIONAL ECONOMICSINTERNATIONAL EXPERIENCEINTERNATIONAL FINANCIAL MARKETSINTERNATIONAL INVESTMENTINTERNATIONAL MONETARY FUNDINTERNATIONAL PORTFOLIOINVESTMENT RATESLIQUIDITYLIQUIDITY CONSTRAINTSLONG TERMLOW-INCOME COUNTRIESMACRO STABILITYMACROECONOMIC ANALYSISMACROECONOMIC ENVIRONMENTMACROECONOMIC IMPACTMACROECONOMIC MANAGEMENTMACROECONOMIC MODELSMACROECONOMIC PERFORMANCEMACROECONOMIC POLICYMACROECONOMICSMARGINAL UTILITYMONETARY FUNDNATIONAL SAVINGNATURAL RESOURCESNOMINAL EXCHANGE RATENOMINAL INTEREST RATENPLOLD AGE CRISISOPEN ECONOMIESOPEN ECONOMYOPPORTUNITY COSTOUTPUTOVERVALUATIONPENSIONPER CAPITA INCOMEPERMANENT INCOMEPOLITICAL ECONOMYPOLITICAL ECONOMY OF REFORMPORTFOLIO DIVERSIFICATIONPOSITIVE EFFECTSPOSTAL SAVINGPOVERTY REDUCTIONPRIVATE CONSUMPTIONPRIVATE INFRASTRUCTUREPRIVATE SAVINGPRODUCTIVITYPRODUCTIVITY GROWTHPROVIDENT FUNDPROVIDENT FUNDSPUBLIC ECONOMICSPUBLIC POLICYPUBLIC SAVINGPUBLIC SECTORRAPID ECONOMIC GROWTHRAPID GROWTHRATE OF GROWTHRATE OF INFLATIONRATE OF INVESTMENTRATE TARGETINGREAL APPRECIATIONREAL EXCHANGEREAL EXCHANGE RATEREAL EXCHANGE RATE VOLATILITYREAL EXCHANGE RATESREAL INCOMEREAL INTERESTREAL INTEREST RATEREAL INTEREST RATESREAL WAGESRELATIVE PRICERESERVERESTRICTIONS ON ENTRYRETURNRISK PREMIUMSAVING RATESSAVINGSSAVINGS RATESSMALL SAVERSSTABLE INFLATIONSUSTAINED GROWTHTAXTAX INCENTIVESTRADE BALANCETRADINGTRANSACTIONTRANSACTION COSTSTRANSACTIONS COSTSUTILITY FUNCTIONWEALTHWorking PaperWorld Bank10.1596/27929