Dabla-Norris, Era, Jun Il Kim, and Kazuko Shirono, 2011, “Optimal Precautionary Reserves for Low-Income Countries: A Cost-Benefit Analysis”, IMF Working Paper 11/249 (Washington D.C.: International Monetary Fund).
Lane, Philip R. and Gian Maria Milesi-Ferretti, 2007, “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004”, Journal of International Economics 73 (2), pp. 223–250.
Lee, Jaewoo, Gian Maria Milesi-Ferretti, Jonathan Ostry, Alessandro Prati, and Luca Antonio Ricci, 2008, “Exchange Rate Assessments: CGER Methodologies”, IMF Occasional Paper No. 261 (Washington D.C.: International Monetary Fund).
Tokarick, Stephen, 2010, “A Method for Calculating Export Supply and Import Demand Elasticities”, IMF Working Paper 10/180 (Washington D.C.: International Monetary Fund).
Prepared by Julia Bersch.
This estimate uses the Nicaragua-specific export and import elasticities calculated by Tokarick (2010) of 1.11 and -1.33, respectively. The standard CGER elasticities (Lee and others, 2008) of export and import volumes of -0.71 and 0.92, respectively, yield a higher overvaluation.
We use the International Investment Position in an updated and extended version of the Lane and Milesi-Ferretti (2007) dataset instead of Net Foreign Assets because the NFA position substantially underestimates external debt by excluding private external debt.
See footnote 2.
Nicaragua ranks in the top third in the goods market efficiency indicators “Number of procedures to start a business”, “Trade tariffs, % duty”, “Imports as percentage of GDP” and in the labor market efficiency indicators “Hiring and firing practices” and “Redundancy costs, weeks of salary”. Also, the 2011 government budget balance (as percent of GDP) indicator ranked Nicaragua 22nd of 142 countries.
The World Bank’s Country Policy and Institutional Assessment (CPIA) measures the extent to which a country’s policy and institutional framework supports sustainable growth and poverty reduction, and, consequently, the effective use of development assistance.