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Capital Flows, Exchange Rate Flexibility, and the Real Exchange Rate
Author:
Jean-Louis Combes null

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Patrick Plane null

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Mr. Tidiane Kinda
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Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 009
Language:
English
Publication Date:
01 Jan 2011
DOI:
https://doi.org/10.5089/9781455211876.001
ISBN:
9781455211876
ISSN:
1018-5941
Pages:
34
Keywords:
WP; nominal exchange rate; Private capital flows; real exchange rate; exchange rate flexibility; emerging markets; low-income countries; pooled mean group estimator; REER appreciation; appreciation effect; FDI flow; exchange rate volatility; exchange rate determination model; index of exchange rate flexibility; appreciation of the real effective exchange rate; exchange rate regime choice; exchange rate system; income effect; exchange rate flexibility variable; dependent variable; Real exchange rates; Capital inflows; Real effective exchange rates; Exchange rate arrangements; Asia and Pacific; Global
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 analyzes the impact of capital inflows and exchange rate flexibility on the real exchange rate in developing countries based on panel cointegration techniques. The results show that public and private flows are associated with a real exchange rate appreciation. Among private flows, portfolio investment has the highest appreciation effect-almost seven times that of foreign direct investment or bank loans-and private transfers have the lowest effect. Using a de facto measure of exchange rate flexibility, we find that a more flexible exchange rate helps to dampen appreciation of the real exchange rate stemming from capital inflows.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund