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Determinants Of Exchange Rate Fluctuations For Venezuela: Application Of An Extended Mundell-Fleming Model

  • HSING, Yu
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Applying and extending the Mundell-Fleming model, this study attempts to examine the behavior of short-term real exchange rates for Venezuela. It finds that the real effective exchange rate is positively associated with real government deficit spending and negatively influenced by real M2, the world interest rate, county risk, and the expected inflation rate. Hence, the authorities need to exercise fiscal discipline so that deficit spending would not be too large to cause real appreciation and hurt exports. When country risk rises due to the financial, economic or political factors, real exchange rates would depreciate.

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Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 6 (2006)
Issue (Month): 1 ()

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Handle: RePEc:eaa:aeinde:v:6:y:2006:i:1_10
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  1. Taylor, Alan M. & Taylor, Mark P, 2004. "The Purchasing Power Parity Debate," CEPR Discussion Papers 4495, C.E.P.R. Discussion Papers.
  2. Michael Schroder & Robert Dornau, 2002. "Do forecasters use monetary models? an empirical analysis of exchange rate expectations," Applied Financial Economics, Taylor & Francis Journals, vol. 12(8), pages 535-543.
  3. Hilde Bjørnland, 2004. "Estimating the equilibrium real exchange rate in Venezuela," Economics Bulletin, AccessEcon, vol. 6(6), pages 1-8.
  4. Sarno, Lucio & Wohar, Mark, 2003. "Monetary Fundamentals and Exchange Rate Dynamics Under Different Nominal Regimes," Computing in Economics and Finance 2003 310, Society for Computational Economics.
  5. Rudiger Dornbusch, 1988. "Real Exchange Rates and Macroeconomics: A Selective Survey," NBER Working Papers 2775, National Bureau of Economic Research, Inc.
  6. Taylor, Mark P. & Sarno, Lucio, 1998. "The behavior of real exchange rates during the post-Bretton Woods period," Journal of International Economics, Elsevier, vol. 46(2), pages 281-312, December.
  7. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
  8. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
  9. repec:ebl:ecbull:v:6:y:2004:i:6:p:1-8 is not listed on IDEAS
  10. Osman Suliman, 2005. "Interest rate volatility, exchange rates, and external contagion," Applied Financial Economics, Taylor & Francis Journals, vol. 15(12), pages 883-894.
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