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

Author/Editor:

Magda E. Kandil

Publication Date:

November 1, 2000

Electronic Access:

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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.

Series:

Working Paper No. 2000/184

Subject:

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

English

Publication Date:

November 1, 2000

ISBN/ISSN:

9781451859355/1018-5941

Stock No:

WPIEA1842000

Pages:

33

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