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The Sources of Real Exchange Fluctuations in Developing countries: an Econometric Investigation

Listed author(s):
  • Christophe Rault

    ()

    (LEO - Laboratoire d'économie d'Orleans - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

In this paper we address the two following questions: (1) what are the major sources of real exchange rate fluctuations in developing countries? (2) do economic policy makers have room to face possible real exchange rate fluctuations? To answer these questions, we estimate a structural VAR model for 3 developing countries (Morocco, The Philippines, Uruguay) and carry out the conventional exercises of impulse response functions and of variance decomposition of forecast error. Our investigatation suggest that domestic shocks dominate real exchange rate fluctuations and that the contribution of external shocks is relatively low. Besides, the low contribution of the nominal shock put into question monetary policies which seek to promote competitiveness through a currency devaluation. Moreover, our estimations confirm that the real exchange rate also depends on shocks on foreign interest rate and/or on the terms of exchange which can make it move from its equilibrium level. The budgetary tool therefore remains efficient to stabilize the real exchange rate with respect to possible external shocks.
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Paper provided by HAL in its series Post-Print with number halshs-00202814.

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Date of creation: 02 Jan 2007
Publication status: Published in The International Applied Business Research, Jan 2007, Waikiki, Beach, Oahu, Hawaii, United States. pp.xx/xx, 2004, Series 2004
Handle: RePEc:hal:journl:halshs-00202814
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00202814
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  6. Clarida, Richard & Gali, Jordi, 1994. "Sources of real exchange-rate fluctuations: How important are nominal shocks?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 1-56, December.
  7. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
  8. J. Saul Lizondo & Peter J. Montiel, 1989. "Contractionary Devaluation in Developing Countries: An Analytical Overview," IMF Staff Papers, Palgrave Macmillan, vol. 36(1), pages 182-227, March.
  9. Willy W. Hoffmaister & Jorge Roldos, 1997. "Are Business Cycles Different in Asia and Latin America?," IMF Working Papers 97/9, International Monetary Fund.
  10. Hoffmaister, Alexander W. & Roldos, Jorge E., 2001. "The Sources of Macroeconomic Fluctuations in Developing Countries: Brazil and Korea," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 213-239, April.
  11. Kamin, Steve B. & Rogers, John H., 2000. "Output and the real exchange rate in developing countries: an application to Mexico," Journal of Development Economics, Elsevier, vol. 61(1), pages 85-109, February.
  12. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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