Real Exchange Rate and Aggregate Demand: Empirical Evidence, 1981-2010

  • Francisco Antonio Martínez Hernández Universidad Anáhuac
  • Gustavo E. Sauri Alpuche Universidad Anáhuac
Palabras clave: undervalued currency, aggregate demand components


This paper assesses the effects of an undervalued currency upon key macroeconomic variables for different developed and developing countries. Based on a reformulation of Rodrik’s undervaluation index, our econometric GMM results suggest that an undervalued currency has been able to enhance these macroeconomic variables in the long run. Nevertheless, when we disaggregate the main components of aggregate demand for a selected set of countries, we find that an undervalued currency has expansionary and contractionary effects in the short-run upon the sectoral macroeconomic balances, the ratios of manufacturing production to GDP, industrial employment to total employment, the wage-share, and the inflation rate.

JEL Classification: F50; F31; F41; C32; C22.


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Biografía del autor

Francisco Antonio Martínez Hernández, Universidad Anáhuac

Facultad de Economía y Negocios de la Universidad AnáhuaC

Gustavo E. Sauri Alpuche, Universidad Anáhuac

Facultad de Economía y Negocios de la Universidad Anáhuac


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