Capital Flows and their Impact on the Real Effective Exchange Rate
This paper analyzes the impact of capital inflows and the exchange rate regime on the real effective exchange rate. A wide range of developing countries (42 countries) is considered with estimation based on panel cointegration techniques. The results show that both public and private inflows cause the real effective exchange rate to appreciate. Among private inflows, portfolio investment has the biggest effect on appreciation, almost seven times that of foreign direct investment or bank loans, and private inflows have the smallest effect. Using a de facto measure of exchange rate flexibility, we find that a more flexible exchange rate helps to dampen appreciation of the real effective exchange rate caused by capital inflows.
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- Thomas William Dorsey & Zuzana Brixiova & Sukhwinder Singh & Helaway Tadesse, 2008. "The Landscape of Capital Flows to Low-Income Countries," IMF Working Papers 08/51, International Monetary Fund.
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Departmental Working Papers
2003-02, The Australian National University, Arndt-Corden Department of Economics.
- Prema-Chandra Athukorala & Sarath Rajapatirana, 2003. "Capital Inflows and the Real Exchange Rate: A Comparative Study of Asia and Latin America," The World Economy, Wiley Blackwell, vol. 26(4), pages 613-637, 04.
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Working Papers Central Bank of Chile
236, Central Bank of Chile.
- Amuedo-Dorantes, Catalina & Pozo, Susan, 2004. "Workers' Remittances and the Real Exchange Rate: A Paradox of Gifts," World Development, Elsevier, vol. 32(8), pages 1407-1417, August.
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