scholarly journals Nominal Exchange Rate Flexibility and Real Exchange Rate Adjustment: Evidence from Dual Exchange Rates in Developing Countries

2007 ◽  
Author(s):  
Yin-Wong Cheung ◽  
Kon S. Lai
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Nominal Exchange Rate ◽  
Exchange Rate Flexibility ◽  
Rate Adjustment

Effective Exchange Rates and the Classical Gold Standard Adjustment

2005 ◽  
Vol 95 (4) ◽  
pp. 1259-1275 ◽  
Author(s):  
Luis A. V Catão ◽  
Solomos N Solomou
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Gold Standard ◽  
Nominal Exchange Rate ◽  
Exchange Rate Flexibility ◽  
Adjustment Mechanism ◽  
Monetary Regimes ◽  
Effective Exchange ◽  
Parity Change

Using a new international dataset of trade-weighed exchange rates, this paper highlights a neglected adjustment mechanism in the classical gold standard literature. Since gold-pegged countries traded extensively with economies operating more flexible monetary regimes and where parity change was a common adjustment device to systemic shocks, we show that such parity adjustments induced worldwide swings in nominal effective exchange rates. These translated into real exchange rate variations to which trade balances responded with an average elasticity of unity and in the direction of restoring external disequilibria. We conclude that some nominal exchange rate flexibility thus present in the pre-1914 system was instrumental to international payments adjustment.

Real Exchange Rate Adjustment in and out of the Eurozone

2012 ◽  
Vol 102 (3) ◽  
pp. 179-185 ◽  
Author(s):  
Martin Berka ◽  
Michael B Devereux ◽  
Charles Engel
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Real Exchange Rates ◽  
Law Of One Price ◽  
Nominal Exchange Rate ◽  
Currency Unions ◽  
Traded Goods ◽  
Rate Adjustment ◽  
Exchange Rate Movements

It is often suggested that currency unions unduly inhibit the efficient adjustment of real exchange rates. Recently, this has been seen as a key failure of the Eurozone. This paper presents evidence that throws doubt on this conclusion. Our evidence suggests that real exchange rate movement within the Eurozone was at least as compatible with efficient adjustment as the behavior of real exchange rates for the floating rate countries outside the Eurozone. This interpretation is consistent with a model in which nominal exchange rate movements give rise to persistent deviations from the law of one price in traded goods.

scholarly journals Monetary Policy and the Predictability of Nominal Exchange Rates

2020 ◽  
Author(s):  
M S Eichenbaum ◽  
B K Johannsen ◽  
S T Rebelo
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Real Exchange Rates ◽  
Nominal Exchange Rate ◽  
Medium Size ◽  
Inflation Rates ◽  
Nominal Exchange Rates

Abstract This article studies how the monetary policy regime affects the relative importance of nominal exchange rates and inflation rates in shaping the response of real exchange rates to shocks. We document two facts about inflation-targeting countries. First, the current real exchange rate predicts future changes in the nominal exchange rate. Second, the real exchange rate is a poor predictor of future inflation rates. We estimate a medium-size, open-economy DSGE model that accounts quantitatively for these facts as well as other empirical properties of real and nominal exchange rates. The key estimated shocks that drive the dynamics of exchange rates and their covariance with inflation are disturbances to the foreign demand for dollar-denominated bonds.

Purchasing Power Parity and Real Exchange Rates

2019 ◽  
Author(s):  
Menzie D. Chinn
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Purchasing Power Parity ◽  
Time Horizon ◽  
Nominal Exchange Rate ◽  
Purchasing Power ◽  
Power Parity ◽  
The Real ◽  
Short Run

The idea that prices and exchange rates adjust so as to equalize the common-currency price of identical bundles of goods—purchasing power parity (PPP)—is a topic of central importance in international finance. If PPP holds continuously, then nominal exchange rate changes do not influence trade flows. If PPP does not hold in the short run, but does in the long run, then monetary factors can affect the real exchange rate only temporarily. Substantial evidence has accumulated—with the advent of new statistical tests, alternative data sets, and longer spans of data—that purchasing power parity does not typically hold in the short run. One reason why PPP doesn’t hold in the short run might be due to sticky prices, in combination with other factors, such as trade barriers. The evidence is mixed for the longer run. Variations in the real exchange rate in the longer run can also be driven by shocks to demand, arising from changes in government spending, the terms of trade, as well as wealth and debt stocks. At time horizon of decades, trend movements in the real exchange rate—that is, systematically trending deviations in PPP—could be due to the presence of nontraded goods, combined with real factors such as differentials in productivity growth. The well-known positive association between the price level and income levels—also known as the “Penn Effect”—is consistent with this channel. Whether PPP holds then depends on the time period, the time horizon, and the currencies examined.

scholarly journals Do emigrants’ remittances cause Dutch disease? A developing countries case study

2019 ◽  
Vol 30 (1) ◽  
pp. 59-76
Author(s):  
Burçak Polat ◽  
Antonio Rodríguez Andrés
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Real Exchange Rates ◽  
Development Aid ◽  
Dutch Disease ◽  
The Real ◽  
Trade Competitiveness ◽  
Remittance Flows

Although the positive socio-economic effects of remittances for recipient countries in the short term are unmistakable, inflows of remittances may at the same time exert adverse effects on the trade competitiveness of an economy, by appreciating the real exchange rate. This phenomenon is characterised as an instance of the ‘Dutch disease’ – the negative impact of windfall revenue inflows on the competitiveness of other tradable sectors and hence on overall economic growth. While the real effect of workers’ remittances on real exchange rates in a recipient economy is still a controversial issue, several studies have analysed evidence for the existence of the ‘Dutch disease’ phenomenon in various sets of countries. The main objective of this study is to examine whether remittance flows have had any adverse effect on the international trade competitiveness of a selected group of developing countries during the period from 1995 to 2014. Using a one-step system Generalised Method of Moments specification within a simultaneous equation approach, it shows that remittance flows depreciate the real exchange rate at their levels and that the lagged value of remittances create the Dutch disease for this country group. In addition, we confirm that while trade openness and world real interest rates contribute to a depreciation in real exchange rates, gross domestic product per capita and net Official Development Aid inflows tend to appreciate real exchange rates. A policy implication is that trade liberalisation policies that lower tariff rates on capital imports and new export-oriented incentive programmes should be accompanied by measures designed to prevent appreciation in the real exchange rate: steps in this direction such as recent macroeconomic and prudential capital flow management initiatives are briefly referenced. JEL Codes: F20, F21, F22, F23

scholarly journals Beggar-Thy-Neighbor Effects of Exchange Rates: A Study of the Renminbi

2017 ◽  
Vol 9 (4) ◽  
pp. 344-366 ◽  
Author(s):  
Aaditya Mattoo ◽  
Prachi Mishra ◽  
Arvind Subramanian
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Trade Data ◽  
Neighbor Effects ◽  
Exchange Rate Changes ◽  
Robust Evidence ◽  
Country Effect ◽  
Identification Strategy

This paper estimates the effect of China's exchange rate changes on exports of developing countries in third markets. The degree of competition between China and its developing country competitors in specific products and destinations plays a key role in the identification strategy. The strategy exploits variation across exporters, importers, products and time—afforded both by disaggregated trade data and bilateral exchange rates—to estimate this “competitor country effect.” There is robust evidence of a statistically and quantitatively significant effect. A 10 percent appreciation of China's real exchange rate boosts a developing country's exports at the product level on average by about 1.5–2.5 percent. (JEL F14, F31, F33, O19, O24, P33)

scholarly journals Do Expectations Play Any Role in Determining Pak Rupee Exchange Rates?

1997 ◽  
Vol 36 (3) ◽  
pp. 263-273
Author(s):  
Razzaque H. Bhatti
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Purchasing Power Parity ◽  
Foreign Currency ◽  
Nominal Exchange Rate ◽  
Power Parity ◽  
Relative Prices

This paper presents some evidence on the role of expectations in the determination of Pak rupee exchange rates vis-à-vis the dollar, pound, and yen over the period 1982:1– 1993:7. Results of cointegration and coefficient restriction tests in two out of three cases are supportive of the view of exchange rate determination in postulating that in efficient markets in which uncertainty and expectations about the future are dominant, the equilibrium nominal exchange rate is determined not only by current relative prices but also by the expected real exchange rate. These results are supportive of ex ante purchasing power parity, implying that the real exchange rate follows a random walk. These results also suggest that the anticipated inflation rate is higher in Pakistan than in other countries, which tends to encourage the domestic residents to convert their current balances into foreign currency, so that the terms of trade deteriorate and offset much of gains of the continuous devaluation of Pak rupee by undermining external competitiveness.

Sign in / Sign up

Export Citation Format

Share Document