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Title: Convergence, Competitiveness and the Exchange Rate

Author(s): Andrea Boltho

Publication Date: June 1994

Keyword(s): Bretton Woods, Competitiveness, Exchange Rates and Trade Liberalization

Programme Area(s): Human Resources

Abstract: Standard theory predicts that exchange rate changes have merely temporary real effects. Yet, if the higher profits that a devaluation ensures are used to improve non-price competitiveness, longer-run effects are possible. The paper looks at the experience of Germany, Spain, France and Italy which, in the 1950s and 1960s, either benefited from low parities or devalued their currencies. Favourable exchange rates probably contributed to these countries' rapid growth, but so did trade liberalization. In today's Europe the scope for further trade liberalization is limited while the uncertainties introduced by floating exchange rates make successful devaluations less likely.

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Bibliographic Reference

Boltho, A. 1994. 'Convergence, Competitiveness and the Exchange Rate'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=970