1 option
Undervaluation Through Foreign Reserve Accumulation : Static Losses, Dynamic Gains / Korinek, Anton
World Bank Open Knowledge Repository (formerly "World Bank E-Library Publications") Available online
View online- Format:
- Book
- Government document
- Author/Creator:
- Korinek, Anton
- Series:
- Policy research working papers.
- World Bank e-Library.
- Language:
- English
- Subjects (All):
- Access to Finance.
- Comparative advantage.
- Currencies and Exchange Rates.
- Debt Markets.
- Devaluation.
- Economic Theory & Research.
- Emerging Markets.
- Equilibrium.
- Externalities.
- Finance and Financial Sector Development.
- GDP.
- Growth models.
- Growth rate.
- Human capital.
- Macroeconomics.
- Macroeconomics and Economic Growth.
- Mercantilism.
- Multilateral trade.
- Net exports.
- Open economy.
- Organizational capital.
- Private Sector Development.
- Productivity.
- Productivity growth.
- Reserve.
- Undervaluation.
- Wages.
- WTO.
- Local Subjects:
- Access to Finance.
- Comparative advantage.
- Currencies and Exchange Rates.
- Debt Markets.
- Devaluation.
- Economic Theory & Research.
- Emerging Markets.
- Equilibrium.
- Externalities.
- Finance and Financial Sector Development.
- GDP.
- Growth models.
- Growth rate.
- Human capital.
- Macroeconomics.
- Macroeconomics and Economic Growth.
- Mercantilism.
- Multilateral trade.
- Net exports.
- Open economy.
- Organizational capital.
- Private Sector Development.
- Productivity.
- Productivity growth.
- Reserve.
- Undervaluation.
- Wages.
- WTO.
- Physical Description:
- 1 online resource (42 pages)
- Other Title:
- Undervaluation Through Foreign Reserve Accumulation
- Place of Publication:
- Washington, D.C., The World Bank, 2010
- System Details:
- data file
- Summary:
- This paper shows that real exchange rate undervaluation through the accumulation of foreign reserves may improve welfare in economies with learning-by-investing externalities that arise disproportionately from the tradable sector. In the presence of targeting problems or when policy choices are restricted by multilateral agreements, first-best policies such as subsidies to capital accumulation, or subsidies to tradable production are not feasible. A neo-mercantilist policy of foreign reserve accumulation "outsources" the targeting problem or overcomes the multilateral restrictions by providing loans to foreigners that can only be used to buy up domestic tradable goods. This raises the relative price of tradable versus non-tradable goods (i.e. undervalues the real exchange rate) at the static cost of temporarily reducing tradable absorption in the domestic economy. However, since the tradable sector generates greater learning-by-investing externalities, it leads to dynamic gains in the form of higher growth. The net welfare effects of reserve accumulation depend on the balance between the static losses from lower tradable absorption versus the dynamic gains from higher growth.
The Penn Libraries is committed to describing library materials using current, accurate, and responsible language. If you discover outdated or inaccurate language, please fill out this feedback form to report it and suggest alternative language.