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Exchange Rate Fluctuations and the Macro-Economy: Channels of Interaction in Developing and Developed Countries

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  • Magda Kandil

    (Western Hemisphere Department, International Monetary Fund, 700 nineteenth Street, Washington, DC 20431, USA.)

Abstract

The paper analyzes interactions between exchange rate fluctuations and the macro-economy in a sample of developing and developed countries. The effect of currency depreciation is particularly pervasive in decreasing consumption and investment across developing countries. Given the high dependency on imported goods in developing countries, currency appreciation decreases competitiveness and, therefore, export growth without a significant negative effect on imports. The trade balance generally improves as currency depreciation boosts export competitiveness in many developing countries. In contrast, the reduction (increase) in exports with respect to currency appreciation (depreciation) may be matched by a reduction (increase) in the domestic value of imports in many industrial countries. Eastern Economic Journal (2008) 34, 190–212. doi:10.1057/palgrave.eej.9050026

Suggested Citation

  • Magda Kandil, 2008. "Exchange Rate Fluctuations and the Macro-Economy: Channels of Interaction in Developing and Developed Countries," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 34(2), pages 190-212, Spring.
    • Handle: RePEc:pal:easeco:v:34:y:2008:i:2:p:190-212
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    Cited by:

    1. Manuel CANTAVELLA-JORDA & Sheila Amin GUTIERREZ DE PIÑERES, 2012. "A Cross-national Panel Study of Devaluations on Disaggregated Export Sectors: A Case for Sector Specific Policies," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 12(2).
    2. Charline Uwilingiyimana & Abdou Kâ Diongue, 2020. "Rwanda Currency Market Risk Analysis: Evidence From Asymmetry Effects," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 9(2), pages 1-2.

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