The Asymmetric Effects of Exchange Rate Fluctuations: Theory and Evidence From Developing Countries
November 1, 2000
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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
Pages:
33
Volume:
2000
DOI:
Issue:
184
Series:
Working Paper No. 2000/184
Stock No:
WPIEA1842000
ISBN:
9781451859355
ISSN:
1018-5941
