Keynes and Macroeconomics After 70 Years
Show Less

Keynes and Macroeconomics After 70 Years

Critical Assessments of The General Theory

Edited by L. Randall Wray and Matthew Forstater

In this substantial new collection, esteemed Post-Keynesian scholars reassess the relevance of Keynes’s The General Theory to a broad array of topic areas, ranging from the environment, investment finance, exchange rates, and socialism, as well as inquiries into general Post-Keynesian theory.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 15: Real Exchange Rate Levels, Investment and Growth: A Keynesian Perspective

Paulo Gala


Paulo Gala INTRODUCTION According to the ‘development approach’ to currency management (Williamson, 2003; Frenkel, 2004), relatively undervalued exchange rates have been a key factor in most East and Southeast Asian successful growth strategies. Chile, Uganda, Mauritius and Turkey in the 1980s and India and China in the 1990s have all benefited from competitive real exchange rates, which fostered exports and output growth. However, most Latin American and African countries have suffered from severe balance-of-payments crises due to exchange rate overvaluation. Chile and Mexico in the early 1980s, as well as Mexico, Brazil and Argentina in the 1990s are good examples. Following the traditional Keynesian macroeconomic channel, an expansionary devaluation boosts exports, income and employment. Exchange rate management may also have strong impacts on savings levels as it determines paths of consumption and investment via real wage determination (Bresser-Pereira, 2004a). Also, an excessively overvalued currency could cause savings displacement. By stimulating the export sector, a relatively undervalued currency may help to avert financial crises and put the economy on a more sustained developmental path. It is an important tool to promote the development of the tradable sector, which is usually very dynamic and contributes to innovations and productivity increases. Numerous studies have argued that most balance-of-payments crises are related to overvalued or misaligned currencies (Goldfajn and Valdes, 1996; Palma, 2003a). If Purchasing Power Parity does not hold in the short run (see Sarno and Taylor, 2002 for a discussion) exchange rate policy may therefore have important developmental and growth...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information

or login to access all content.