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On the long-run determinants of real exchange rates for developing countries : Evidence from Africa, Latin America and Asia

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Imed Drine ()
Christophe Rault ()

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Abstract

The main goal of this paper is to tackle the empirical issues of the real exchange rate litterature by applying recently developed panel cointegration techniques to a structural long-run real exchange rate equation. We consider here a sample of 45 developing countries, divided into three groups according to geographical criteria: Africa, Latin America and Asia. Our investigations confirm that having a reference to assess the degree of distortion of real exchange rate is not as simple as it can be thought with the PPP concept. The real exchange rate is e?ectively at the centre of an economic spiral and its value depends on the economic specificities of each country. In other words, we don’t have a fixed and general norm but, for each economy, the real exchange rate trajectory depends on its development level, on the way economic policy is conducted, and on its position on the international market.

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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number 2003-571.

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Length: 31 pages
Date of creation: 08 May 2003
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Handle: RePEc:wdi:papers:2003-571

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Related research
Keywords: Real exchange rate; Developing country;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
F0 - International Economics - - General
F31 - International Economics - - International Finance - - - Foreign Exchange
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods

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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.:
  1. Michel Aglietta & Camille Baulant & Virginie Coudert, 1997. "Why the Euro Will Be Strong: An Approach Based on Equilibrium Exchange Rates," Working Papers 1997-18, CEPII research center. [Downloadable!]
  2. Ronald MacDonald, 1997. "What Determines Real Exchange Rates? The Long and Short of It," IMF Working Papers 97/21, International Monetary Fund.
  3. Quah, D., 1993. "Exploiting Cross Section Variation for Unit Root Inference in Dynamic Data," Papers 549, Stockholm - International Economic Studies.
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  4. Cottani, Joaquin A & Cavallo, Domingo F & Khan, M Shahbaz, 1990. "Real Exchange Rate Behavior and Economic Performance in LDCs," Economic Development and Cultural Change, University of Chicago Press, vol. 39(1), pages 61-76, October.
  5. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
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  6. Aron, J. & Elbadawi, I. & Kahn, B., 1998. "Determinants of the Real Exchange Rate in South Africa," Working Papers Series 98-16, Centre for the Study of African Economies, University of Oxford.
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  7. 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. [Downloadable!]
  8. Imed Drine & Christophe Rault, 2003. "Do panel data permit the rescue of the Balassa-Samuelson hypothesis for Latin American countries?," Applied Economics, Taylor and Francis Journals, vol. 35(3), pages 351-359, January. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Jesús Ferreyra & Jorge Salas, 2006. "The Equilibrium Real Exchange Rate in Peru: BEER Models and Confidence Band Building," Working Papers 2006-006, Banco Central de Reserva del Perú. [Downloadable!]
  2. Jorge Carrera & Romain Restout, 2008. "Long Run Determinants of Real Exchange Rates in Latin America," Post-Print halshs-00276402_v1, HAL. [Downloadable!]
    Other versions:
  3. Elbadawi, Ibrahim A. & Kaltani, Linda & Schmidt-Hebbel, Klaus, 2007. "Post-conflict aid, real exchange rate adjustment, and catch-up growth," Policy Research Working Paper Series 4187, The World Bank. [Downloadable!]
  4. Raimundo Soto, 2008. "Unemployment and Real Exchange Rate Dynamics in Latin American Economies," Documentos de Trabajo 337, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
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