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Real Exchange Rate Policy for Economic Development

Working Paper #300

José Antonio Ocampo, Martin Guzman, Joseph Stiglitz

Paper  541kb pdf


This paper analyzes the role of real exchange rate (RER) policies for promoting economic development. Markets provide a suboptimal amount of investment in sectors characterized by learning spillovers. We argue that a stable and competitive RER policy may correct externalities and other market failures, enabling the development of sectors with a larger contribution to inclusive economic growth. Optimality also requires a system of multiple effective exchange rates, where sectors with negative externalities or with smaller learning spillovers are more heavily taxed. We argue that RER policies must be complemented by traditional industrial policies that increase the elasticity of the aggregate supply to the RER. We also discuss the challenges and trade-offs associated with RER policies, and we describe a variety of instruments that can be used for their implementation.

About the Authors

José Antonio Ocampo
Initiative for Policy Dialogue (IPD)

Jose Antonio Ocampo is Co-President of IPD, Professor of Professional Practice in the School of International and Public Affairs, and Fellow of the Committee on Global Thought at Columbia University. Prior to his appointment at Columbia, Professor Ocampo served as the United Nations Under-Secretary-General for Economic and Social Affairs, and head of UN Department of Economic and Social Affairs (DESA), as Executive Secretary of the UN Economic Commission for Latin America and the Caribbean (ECLAC), and has held a number of high-level posts in the Government of Colombia, including Minister of Finance and Public Credit, Director of the National Planning Department, and Minister of Agriculture . Professor Ocampo is author or editor of over 30 books and has published over 200 scholarly articles on macroeconomic theory and policy, international financial issues, economic development, international trade, and Colombian and Latin American economic history.

Martin Guzman
Associate Research Scholar
Graduate School of Business
Columbia University

Martin Guzman is a Associate Research Fellow at Columbia University Graduate School of Business and an Associate Professor at Universidad de Buenos Aires.

He is a co-chair of Columbia University Initiative for Policy Dialogue's Taskforce on Debt Restructuring and Sovereign Bankruptcy, and a member of the INET Research Group on "Macroeconomic Externalities” chaired by Professor Joseph Stiglitz. He is also a Senior Fellow in CIGI’s Global Economy Program. He is an Editor of the Journal of Globalization and Development.

He holds a PhD in Economics from Brown University. His research fields are Macroeconomics and Economic Development.

Joseph Stiglitz
Initiative for Policy Dialogue (IPD)

Joseph E. Stiglitz is co-President of the Initiative for Policy Dialogue, and Chairman of the Committee on Global Thought at Columbia University. He is University Professor at Columbia, teaching in its Economics Department, its Business School, and its School of International and Public Affairs. He chaired the UN Commission of Experts on Reforms of the International Monetary and Financial System, created in the aftermath of the financial crisis by the President of the General Assembly. He is former Chief Economist and Senior Vice-President of the World Bank and Chairman of President Clinton’s Council of Economic Advisors. He was awarded the Nobel Memorial Prize in Economics in 2001.

Publication Information

Type Working Paper
Program Macroeconomic Policy
Posted 07/26/16
Download 541kb pdf
# Pages 30