IMF Working Papers

The Asymmetric Effects of Exchange Rate Fluctuations: Theory and Evidence From Developing Countries

By Magda E. Kandil

November 1, 2000

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Magda E. Kandil The Asymmetric Effects of Exchange Rate Fluctuations: Theory and Evidence From Developing Countries, (USA: International Monetary Fund, 2000) accessed November 8, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Currencies, Depreciation, Exchange rates, Foreign exchange, Inflation, Money, National accounts, Prices, Production, Production growth

Keywords: Asymmetric fluctuations, Currencies, Currency depreciation, Currency price, Decreases price inflation, Demand and supply, Demand and supply channel, Depreciation, Exchange rate, Exchange rates, Foreign currency, Government spending, Inflation, Inflation in the face, Output contraction, Output price, Price deflation, Price inflation, Price response, Production growth, Rational expectations, Real output growth, Rises in the face, WP

Publication Details

  • Pages:

    33

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2000/184

  • Stock No:

    WPIEA1842000

  • ISBN:

    9781451859355

  • ISSN:

    1018-5941