Exchange Rate Fluctuations And Economic Activity In Developing Countries: Theory And Evidence
AbstractThis paper examines the effects of exchange rate fluctuations on real output growth and price inflation in a sample of twenty-two developing countries. The analysis introduces a theoretical rational expectation model that decomposes movements in the exchange rate into anticipated and unanticipated components. The model demonstrates the effects of demand and supply channels on the output and price responses to changes in the exchange rate. In general, exchange rate depreciation, both anticipated and unanticipated, decreases real output growth and increases price inflation. The evidence confirms concerns about the negative effects of currency depreciation on economic performance in developing countries.
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Bibliographic InfoArticle provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.
Volume (Year): 29 (2004)
Issue (Month): 1 (June)
Exchange Rate; Output Growth; Price Inflation; Supply vs. Demand Shifts;
Find related papers by JEL classification:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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