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Determinants Of Exchange Rate Fluctuations For Venezuela: Application Of An Extended Mundell-Fleming Model

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  • HSING, Yu

Abstract

Applying and extending the Mundell-Fleming model, this study attempts to examine the behavior of short-term real exchange rates for Venezuela. It finds that the real effective exchange rate is positively associated with real government deficit spending and negatively influenced by real M2, the world interest rate, county risk, and the expected inflation rate. Hence, the authorities need to exercise fiscal discipline so that deficit spending would not be too large to cause real appreciation and hurt exports. When country risk rises due to the financial, economic or political factors, real exchange rates would depreciate.

Suggested Citation

  • HSING, Yu, 2006. "Determinants Of Exchange Rate Fluctuations For Venezuela: Application Of An Extended Mundell-Fleming Model," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(1).
    • Handle: RePEc:eaa:aeinde:v:6:y:2006:i:1_10
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    References listed on IDEAS

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    Cited by:

    1. Giannellis, Nikolaos & Koukouritakis, Minoas, 2013. "Exchange rate misalignment and inflation rate persistence: Evidence from Latin American countries," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 202-218.

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    More about this item

    Keywords

    Real Effective Exchange Rate; Country Risk; World Interest Rate; Monetary Policy; Fiscal Policy;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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