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The Asymmetric Effects of Exchange Rate Fluctuations; Theory and Evidence From Developing Countries

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  • Magda E. Kandil

Abstract

The paper examines the asymmetric effects of exchange rate fluctuations on real output and price in developing countries. The theoretical model decomposes movements in the exchange rate into anticipated and unanticipated components. Unanticipated currency fluctuations determine aggregate demand through exports, imports, and the demand for domestic currency, and determine aggregate supply through the cost of imported intermediate goods. The evidence indicates that the supply channel leads to output contraction and price inflation in the face of unanticipated currency depreciation. In contrast, the reduction in net exports determines output contraction without reducing price inflation in the face of unanticipated currency appreciation.

Suggested Citation

  • Magda E. Kandil, 2000. "The Asymmetric Effects of Exchange Rate Fluctuations; Theory and Evidence From Developing Countries," IMF Working Papers 00/184, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:00/184
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    Citations

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    Cited by:

    1. Mendoza Lugo, Omar & Pedauga, Luis Enrique, 2006. "Efecto transferencia (pass-through) del tipo de cambio en los precios de bienes y servicios en Venezuela
      [Exchange rate pass-through on prices of goods and services in Venezuela]
      ," MPRA Paper 14874, University Library of Munich, Germany.
    2. Andrés González & Hernán Rincón & Norberto Rodríguez, 2008. "La transmisión de los choques a la tasa de cambio sobre la inflación de los bienes importados en presencia de asimetrías," Borradores de Economia 532, Banco de la Republica de Colombia.
    3. Ugurlu, Erginbay, 2006. "Real Exchange Rate And Economic Growth: Turkey," MPRA Paper 60343, University Library of Munich, Germany, revised 2009.
    4. Mark Crosby & Glenn Otto, 2001. "Growth and the Real Exchange Rate - Evidence from Eleven Countries," Working Papers 082001, Hong Kong Institute for Monetary Research.
    5. NAGHDI Yazdan & KAGHAZIAN Soheila, 2015. "The Effects Of Asymmetric Transmission Of Exchange Rate On Inflation In Iran:Application Of Threshold Models," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 10(2), pages 99-113, August.
    6. Andrés González & Hernán Rincóm & Norberto Rodríguez, 2008. "La transmisión de los choques a la tasa de cambio sobre la inflación," BORRADORES DE ECONOMIA 005089, BANCO DE LA REPÚBLICA.
    7. Nergiz Dincer & Magda Kandil, 2011. "The effects of exchange rate fluctuations on exports: A sectoral analysis for Turkey," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(6), pages 809-837, June.

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