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Response of the Equilibrium Real Exchange Rate to Real Disturbances in Developing Countries

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  • Mohsin S. Khan
  • Jonathan David Ostry

Abstract

Using a simple dependent - economy framework, this paper outlines the links between the equilibrium real exchange rate and some of its fundamental exogenous determinants, mainly terms of trade movements and commercial policy changes. Drawing on existing studies of trade flows in developing countries, it is possible to derive plausible quantitative ranges for the response of the equilibrium real exchange rate to both external and policy-induced shocks. The results should be particularly relevant in designing real exchange rate targets and rules that allow for movements in the equilibrium real exchange rate in response to various shocks.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 91/3.

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Length: 18
Date of creation: 01 Jan 1991
Date of revision:
Handle: RePEc:imf:imfwpa:91/3

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Cited by:
  1. Schweickert, Rainer & Nunnenkamp, Peter & Hiemenz, Ulrich, 1992. "Stabilisierung durch feste Wechselkurse: Fehlschlag in Entwicklungsländern - Erfolgsrezept für Osteuropa?," Kiel Discussion Papers 181, Kiel Institute for the World Economy (IfW).
  2. Todd Schneider & Nabil Ben Ltaifa & Faisal Ahmed & Saade Chami, 2007. "Yemen," IMF Working Papers 07/5, International Monetary Fund.
  3. Yoopi Abimanyu, 1998. "Using Indonesia's Real Exchange Rate to Test Ricardian Equivalence," International Economic Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(3), pages 17-29.
  4. Subrata Ghatak & Jalal Siddiki, 2001. "The use of the ARDL approach in estimating virtual exchange rates in India," Journal of Applied Statistics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 28(5), pages 573-583.
  5. You, Kefei & Sarantis, Nicholas, 2012. "Structural breaks and the equilibrium real effective exchange rate of China: A NATREX approach," China Economic Review, Elsevier, Elsevier, vol. 23(4), pages 1146-1163.
  6. Taline Koranchelian, 2005. "The Equilibrium Real Exchange Rate in a Commodity Exporting Country," IMF Working Papers 05/135, International Monetary Fund.
  7. Reinhart, Carmen, 1994. "Devaluation, Relative Prices, and International Trade," MPRA Paper 13708, University Library of Munich, Germany.
  8. Jongwanich, Juthathip, 2009. "Equilibrium Real Exchange Rate, Misalignment, and Export Performance in Developing Asia," ADB Economics Working Paper Series 151, Asian Development Bank.
  9. International Monetary Fund, 2003. "The Equilibrium Real Exchange Rate in a Commodity Exporting Country," IMF Working Papers 03/93, International Monetary Fund.
  10. Xiangming Li, 2003. "Trade Liberalization and Real Exchange Rate Movement," IMF Working Papers 03/124, International Monetary Fund.
  11. Joannes Mongardini & Alexander Chudik, 2007. "In Search of Equilibrium," IMF Working Papers 07/90, International Monetary Fund.

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