Response of the Equilibrium Real Exchange Rate to Real Disturbances in Developing Countries

Author/Editor:

Mohsin S. Khan ; Jonathan David Ostry

Publication Date:

January 1, 1991

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:

Using a simple dependent - economy framework, this paper outlines the links between the equilibrium real exchange rate and some of its fundamental exogenous determinants, mainly terms of trade movements and commercial policy changes. Drawing on existing studies of trade flows in developing countries, it is possible to derive plausible quantitative ranges for the response of the equilibrium real exchange rate to both external and policy-induced shocks. The results should be particularly relevant in designing real exchange rate targets and rules that allow for movements in the equilibrium real exchange rate in response to various shocks.

Series:

Working Paper No. 1991/003

Subject:

Demand elasticity Personal income Real exchange rates Tariffs Terms of trade

English

Publication Date:

January 1, 1991

ISBN/ISSN:

9781451841800/1018-5941

Stock No:

WPIEA0031991

Pages:

18

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