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The Exchange Rate as an Industrial Policy / Pablo Ottonello, Diego J. Perez, William Witheridge.
- Format:
- Book
- Author/Creator:
- Ottonello, Pablo.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w32522.
- NBER working paper series no. w32522
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2024.
- Summary:
- We study the role of exchange rates in industrial policy. We construct an open-economy macroeconomic framework with production externalities and show that the desirability of these policies critically depends on the dynamic patterns of externalities. When they are stronger in earlier stages of development, economies that are converging to the technological frontier can improve welfare by intervening in foreign exchange markets, keeping the exchange rate undervalued, and speeding the transition; economies that are not converging to the technological frontier are better off not using the exchange rate as an industrial policy tool. Capital-flow mobility and labor market dynamism play a central role in the effectiveness of these policies. We also discuss the role of capital controls as an industrial policy tool and use our framework to interpret historical experiences.
- Notes:
- May 2024.
- Print version record
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