Why worry about real exchange rates? The missing link between Dutch disease and growth

Marc Auboin, Michele Ruta, 13 November 2011Real exchange rates are a headache for policymakers. Sometimes they move around too much, disrupting trade and harming business, sometimes they don’t move enough, leaving economies with fewer options for growth. This column reviews the literature on the effects of exchange-rate volatility and how to deal with them. Full Article: Currencies and trade: Looking at the recent literature

THIS week, our Free exchange print article—An incurable disease—reviews a new book by William Baumol that sets out to explain charts like this one:

I’d long known the factoid that Dutch people generally do the least work of anyone in the world:

Helge Berger, Volker Nitsch, 2 November 2010What can policymakers do to redress the global imbalances? This column presents evidence from 18 European countries over the past 60 years. It finds that while permanently fixed nominal exchange rates often result in large and lasting trade imbalances, these imbalances usually reflect a difference in trade competitiveness that can be addressed through structural and macroeconomic policies.Full Article: Redressing global imbalances: Evidence from the Eurozone

Jeffrey Frankel, George Saravelos, 1 July 2010Can “early warning indicators” predict which countries are most vulnerable to a crisis? This column examines more than 80 contributions to the pre-2008 literature on crisis indicators. It finds that the level of central bank currency reserves can help identify the worst affected by crises. Other useful early warning indicators include real effective exchange rate overvaluation, current accounts, and national savings.

Mark E. Bachmann submits: The announcement that it suddenly appears there may be "nearly $1 trillion" in untapped mineral serves in Afghanistan caught everyone's attention a couple of weeks ago, at least briefly. In the current economic environment, most of us are becoming a little jaded to the t-word, but in a place like Afghanistan, a trillion US dollar is still real money.

Milan Brahmbhatt, Otaviano Canuto, Ekaterina Vostroknutova, 21 June 2010The recent boom in primary commodity prices has once more stimulated interest in the issue of “Dutch Disease” – the changes in a country’s structure of production expected after a favourable shock such as a large natural resource discovery. This column examines the implications for welfare and some policy options for resource-rich countries.Full Article: Dealing with Dutch disease

Jean Boivin, Robert Clark, Nicolas Vincent, 6 March 2010How much of a change in exchange rates is required to redress global imbalances? This column presents new evidence from online bookstores suggesting that neither shoppers nor retailers react to price differences across borders. This implies that realignment of cross-country consumption levels may require large and persistent exchange rate changes.