Real and Monetary Determinants of Real Exchange Rate Behavior: Theory and Evidence From Developing Countries
AbstractThis paper develops a dynamic model of real exchange rate behavior in developing countries. A three goods economy (exportables, importables and nontradables) is considered. Residents of this country hold domestic and foreign assets, and there is a dual exchange rate regime. There is a government that consumes importables and nontradables. A distinction is made between equilibrium and disequilibrium movements of the RER. The determinants of real exchange rate misalignment are studied with emphasis placed on the role of devaluations and balance of payments crisis. The implications of the model are tested using data for 12 developing countries. The results obtained are generally favorable for the model. The issue of RER stationarity is also analyzed.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2721.
Date of creation: Sep 1988
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Publication status: published as "Real and Monetary Determinants of Real Exchange Rate Behavior." From Journal of Development Economics, Vol. 29, pp. 311-341, (1988).
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Other versions of this item:
- Edwards, Sebastian, 1988. "Real and monetary determinants of real exchange rate behavior: Theory and evidence from developing countries," Journal of Development Economics, Elsevier, Elsevier, vol. 29(3), pages 311-341, November.
- Sebastion Edwards, 1988. "Real and Monetary Determinants of Real Exchange Rate Behavior: Theory and Evidence from Developing Countries," UCLA Economics Working Papers, UCLA Department of Economics 506, UCLA Department of Economics.
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