Advanced Search
MyIDEAS: Login to save this paper or follow this series

Capital Flows, Exchange Rate Flexibility, and the Real Exchange Rate

Contents:

Author Info

  • Jean-Louis Combes
  • Patrick Plane
  • Tidiane Kinda

Abstract

This paper analyzes the impact of capital inflows and exchange rate flexibility on the real exchange rate in developing countries based on panel cointegration techniques. The results show that public and private flows are associated with a real exchange rate appreciation. Among private flows, portfolio investment has the highest appreciation effect-almost seven times that of foreign direct investment or bank loans-and private transfers have the lowest effect. Using a de facto measure of exchange rate flexibility, we find that a more flexible exchange rate helps to dampen appreciation of the real exchange rate stemming from capital inflows.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=24562
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/9.

as in new window
Length: 34
Date of creation: 01 Jan 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/9

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Private capital flows; Emerging markets; Capital inflows; Developing countries; Economic models; Exchange rate appreciation; Exchange rate regimes; External financing; Flexible exchange rates; Real effective exchange rates; exchange rate; real exchange rate; exchange rate flexibility; capital flows; private flows; real appreciation; composition of capital inflows; private capital; real effective exchange rate; nominal exchange rate; exchange rate regime; exchange rates; effective exchange rate; foreign exchange; private capital inflows; flexible exchange rate; real exchange rate appreciation; real exchange rates; official flows; capital inflow; capital movements; capital flow; commercial bank loans; nominal effective exchange rate; capital outflow; foreign exchange market; foreign capital inflows; exchange rate determination; exchange rate volatility; capital controls; floating exchange rate system; foreign capital; exchange rate system; floating exchange rate; exchange rate misalignment; intermediate exchange rate; short-term capital; equilibrium exchange rate; floating system; excess demand; exchange rate behavior; corporate bonds; effective exchange rates; current account deficit; intermediate regimes; current account deficits; real exchange rate behavior; exchange reserves; foreign investment; capital control; nominal bilateral exchange rate; net capital; foreign exchange reserves; intermediate exchange rate regime; external capital; fixed exchange rate; fixed exchange rates; exchange rate adjustments; bilateral exchange rate; debt securities; government bonds; flexible exchange rate regime;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Smarzynska, Beata K., 2002. "Does foreign direct investment increase the productivity of domestic firms : in search of spillovers through backward linkages," Policy Research Working Paper Series 2923, The World Bank.
  2. Stephen J. Turnovsky & Serpil Tekin & Valerie Cerra, 2008. "Foreign Aid and Real Exchange Rate Adjustments in a Financially Constrained Dependent Economy," IMF Working Papers, International Monetary Fund 08/204, International Monetary Fund.
  3. PENTECOST, Eric J. & VAN HOOYDONK, Charlotte & VAN POECK, André, 1997. "Measuring and estimating exchange market pressure in the EU," SESO Working Papers, University of Antwerp, Faculty of Applied Economics 1997009, University of Antwerp, Faculty of Applied Economics.
  4. Agenor, Pierre-Richard, 1998. "Capital inflows, external shocks, and the real exchange rate," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(5), pages 713-740, October.
  5. Nyoni, Timothy S., 1998. "Foreign Aid and Economic Performance in Tanzania," World Development, Elsevier, Elsevier, vol. 26(7), pages 1235-1240, July.
  6. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2006. "Financial Globalization," IMF Working Papers, International Monetary Fund 06/189, International Monetary Fund.
  7. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany.
  8. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2000. "The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2511, C.E.P.R. Discussion Papers.
  9. Elbadawi, Ibrahim A. & Soto, Raimundo, 1994. "Capital flows and long-term equilibrium real exchange rates in Chile," Policy Research Working Paper Series 1306, The World Bank.
  10. M Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 8-62, April.
  11. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1994. "The Capital Inflows Problem: Concepts And Issues," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 12(3), pages 54-66, 07.
  12. Emmanuel K. K. Lartey, 2008. "Capital Inflows, Dutch Disease Effects, and Monetary Policy in a Small Open Economy," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 16(5), pages 971-989, November.
  13. Luca Antonio Ricci & Jaewoo Lee & Gian-Maria Milesi-Ferretti, 2008. "Real Exchange Rates and Fundamentals," IMF Working Papers, International Monetary Fund 08/13, International Monetary Fund.
  14. Aiyar, Shekhar & Berg, Andrew & Hussain, Mumtaz, 2008. "The Macroeconomic Management of Increased Aid: Policy Lessons from Recent Experience," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2008/79, World Institute for Development Economic Research (UNU-WIDER).
  15. Ibrahim A. Elbadawi & Raimundo Soto, . "Real Exchange Rates and Macroeconomic Adjustment in Sub-Sahara Africa and Other Developing Countries," ILADES-Georgetown University Working Papers, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines inv093, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  16. Raghuram G. Rajan & Arvind Subramanian, 2005. "What Undermines Aid's Impact on Growth?," NBER Working Papers 11657, National Bureau of Economic Research, Inc.
  17. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1996. "Inflows of capital to developing countries in the 1990s," MPRA Paper 13707, University Library of Munich, Germany.
  18. Tidiane Kinda, 2012. "Foreign ownership, sales to multinationals and firm efficiency: the case of Brazil, Morocco, Pakistan, South Africa and Vietnam," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 19(6), pages 551-555, April.
  19. Guillermo A. Calvo, 1991. "The Perils of Sterilization," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 921-926, December.
  20. Connel Fullenkamp & Thomas F. Cosimano & Michael T. Gapen & Ralph Chami & Peter Montiel & Adolfo Barajas, 2008. "Macroeconomic Consequences of Remittances," IMF Occasional Papers 259, International Monetary Fund.
  21. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 79-113, July.
  22. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 53-74, July.
  23. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers, Department of Economics, Williams College 2000-02, Department of Economics, Williams College.
  24. Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(5), pages 901-18, October.
  25. Cashin, Paul & Cespedes, Luis F. & Sahay, Ratna, 2004. "Commodity currencies and the real exchange rate," Journal of Development Economics, Elsevier, Elsevier, vol. 75(1), pages 239-268, October.
  26. Tidiane Kinda, 2008. "Infrastructures et flux de capitaux privés vers les pays en développement," Revue économique, Presses de Sciences-Po, Presses de Sciences-Po, vol. 59(3), pages 537-549.
  27. Emmanuel K. K. Lartey, 2007. "Capital inflows and the real exchange rate: An empirical study of sub-Saharan Africa," The Journal of International Trade & Economic Development, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(3), pages 337-357.
  28. Chen, Yu-chin & Rogoff, Kenneth, 2003. "Commodity currencies," Journal of International Economics, Elsevier, Elsevier, vol. 60(1), pages 133-160, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Kojo, Naoko C., 2014. "Demystifying Dutch disease," Policy Research Working Paper Series 6981, The World Bank.
  2. Andrew Powell & Pilar Tavella, 2012. "Capital Inflow Surges in Emerging Economies: How Worried Should LAC Be?," IDB Publications 76956, Inter-American Development Bank.
  3. Maroula Khraiche & Jeffrey Gaudette, 2013. "FDI, Exchange Rate Volatility and Financial Development: Regional Differences In Emerging Economies," Economics Bulletin, AccessEcon, vol. 33(4), pages 3143-3156.
  4. Jorg Bibow, 2011. "Permanent and Selective Capital Account Management Regimes as an Alternative to Self-Insurance Strategies in Emerging-market Economies," Economics Working Paper Archive, Levy Economics Institute wp_683, Levy Economics Institute.
  5. Heng, Dyna, 2011. "Capital flows and real exchange rate: does financial development matter?," MPRA Paper 48553, University Library of Munich, Germany, revised May 2012.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:11/9. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.