Cover IMF Working Papers
Real Exchange Rate Volatility and the Price of Nontradables in Sudden-Stop-Prone Economies
Author: Mr. Enrique G. Mendoza
Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 088
Language:
English
Publication Date:
01 Mar 2006
DOI:
https://doi.org/10.5089/9781451863482.001
ISBN:
9781451863482
ISSN:
1018-5941
Pages:
34
Keywords:
WP; nominal exchange rate; equilibrium price; debt ceiling
Legal-disclaimer:
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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This paper shows that the dominant view that the high variability of real exchange rates is due to movements in exchange rate-adjusted prices of tradable goods does not hold for Mexican data for periods with a managed exchange rate. The relative price of nontradables accounts for up to 70 percent of real exchange rate variability during these periods. The paper also proposes a model in which this fact, and the sudden stops that accompanied the collapse of Mexico's managed exchange rates, could result from a Fisherian debt-deflation mechanism operating via nontradables prices in economies with dollarized liabilities.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund