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Exchange Rate Volatility and Productivity Growth: The Role of Financial Development1 Philippe Aghion Philippe Bacchetta2 Romain Ranciere Harvard University University of Lausanne IMF Research Department NBER Swiss Finance Institute CEPR CEPR Kenneth Rogo§ Harvard University NBER February 1, 2008 1We would like to thank Jaume Ventura, Alan Stockman, Eric van Wincoop, Daron Acemoglu, Ben Sorensen, Henri Pages and several participants at ESSIM 2005, the NBER Summer Institute 2005, and at seminars at Harvard, Pompeu Fabra, PSE, Lausanne, and Zurich for useful comments. Luis Angeles and Guillermo Vuletin provided able research assistance. We acknowledge Önancial support from the Fondation Banque de France and from the National Centre of Competence in Research Financial Valuation and Risk Management (NCCR FINRISK). The NCCR FINRISK is a research program supported by the Swiss National Science Foundation. The views expressed in this paper are those of the authors and do not necessarily represent those of the IMF or IMF policy. The Empirical Appendix to this paper is available at /ABR2appendix.pdf 2 Corresponding author: Philippe Bacchetta, Faculty of Business and Economics, University of Lausanne, Extranef, 1015 Lausanne, Switzerland, philippe.bacchetta@unil.ch Abstract This paper o§ers empirical evidence that real exchange rate volatility can have a signiÖcant impact on the long-term rate of productivity growth, but the e§ect depends critically on a countryís level of Önancial development. For countries with relatively