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The Asymmetric Effects of Exchange Rate Fluctuations: Theory and Evidence From Developing Countries
Author:
Ms. Magda E. Kandil
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Series:
IMF Working Papers
Volume/Issue:
Volume 2000: Issue 184
Language:
English
Publication Date:
01 Nov 2000
DOI:
https://doi.org/10.5089/9781451859355.001
ISBN:
9781451859355
ISSN:
1018-5941
Pages:
33
Keywords:
WP; price inflation; demand and supply; foreign currency; government spending; Exchange rate; rational expectations; asymmetric fluctuations; currency depreciation; output contraction; price deflation; rises in the face; output price; price response; real output growth; currency price; inflation in the face; demand and supply channel; decreases price inflation; Exchange rates; Currencies; Inflation; Depreciation; Production growth
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The paper examines the asymmetric effects of exchange rate fluctuations on real output and price in developing countries. The theoretical model decomposes movements in the exchange rate into anticipated and unanticipated components. Unanticipated currency fluctuations determine aggregate demand through exports, imports, and the demand for domestic currency, and determine aggregate supply through the cost of imported intermediate goods. The evidence indicates that the supply channel leads to output contraction and price inflation in the face of unanticipated currency depreciation. In contrast, the reduction in net exports determines output contraction without reducing price inflation in the face of unanticipated currency appreciation.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2000: Issue 184