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The Asymmetric Effects of Exchange Rate Fluctuations

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Author Info

  • Magda E. Kandil

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/184.

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Length: 33
Date of creation: 01 Nov 2000
Date of revision:
Handle: RePEc:imf:imfwpa:00/184

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Related research

Keywords: Exchange rates; Developing countries; Economic models; exchange rate; inflation; price inflation; real output; exchange rate shocks; currency depreciation; aggregate demand; currency appreciation; exchange rate fluctuations; money supply; real effective exchange rate; effective exchange rate; foreign currency; price level; exchange rate variability; price deflation; real exchange rate; rational expectations; effective exchange rates; real interest rate; real money; real value; relative prices; exchange rate depreciation; nominal exchange rate; exchange rate shock; nominal interest rate; exchange rate policy; exchange rate movements; exchange rate appreciation; currency devaluation; real money supply; terms of trade; real national income; currency units;

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Citations

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Cited by:
  1. Mendoza Lugo, Omar & Pedauga, Luis Enrique, 2006. "Efecto transferencia (pass-through) del tipo de cambio en los precios de bienes y servicios en Venezuela
    [Exchange rate pass-through on prices of goods and services in Venezuela]
    ," MPRA Paper 14874, University Library of Munich, Germany.
  2. Andrés González & Hernán Rincón & Norberto Rodríguez, . "La transmisión de los choques a la tasa de cambio sobre la inflación de los bienes importados en presencia de asimetrías," Borradores de Economia 532, Banco de la Republica de Colombia.
  3. Andrés González & Hernán Rincóm & Norberto Rodríguez, 2008. "La transmisión de los choques a la tasa de cambio sobre la inflación," BORRADORES DE ECONOMIA 005089, BANCO DE LA REPÚBLICA.
  4. Mark Crosby & Glenn Otto, 2001. "Growth and the Real Exchange Rate - Evidence from Eleven Countries," Working Papers 082001, Hong Kong Institute for Monetary Research.

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