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Measuring real exchange rate instability in developing countries : empirical evidence and implications

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  • Pritchett,Lant Hayward

Abstract

Exchange rate policy has received renewed attention because of its prominent role in adjustment programs. Several analysts have examined the impact of real exchange rate uncertainty on the performance of such economic variables as GDP growth, exports, and investment. The author uses data on the real exchange rate for 56 developing countries with managed exchange rates to make three points. First, the distribution of annual changes in real exchange rates is highly non-normal - both skewness and excess kurtosis. Secondly, this asymmetric non-normality implies that the common practice of using the standard deviation (or coefficient of variation) to compare real exchange rate uncertainty across countries is not justified. Finally, empirically, the higher order moments (skewness and kurtosis) are at least as important as the standard deviation in explaining cross-country performance.

Suggested Citation

  • Pritchett,Lant Hayward, 1991. "Measuring real exchange rate instability in developing countries : empirical evidence and implications," Policy Research Working Paper Series 791, The World Bank.
    • Handle: RePEc:wbk:wbrwps:791
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    References listed on IDEAS

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    Cited by:

    1. Qian, Ying & Varangis, Panos, 1992. "Does exchange rate volatility hinder export growth? Additional evidence," Policy Research Working Paper Series 911, The World Bank.
    2. Murat Doğanlar, 2002. "Estimating the impact of exchange rate volatility on exports: evidence from Asian countries," Applied Economics Letters, Taylor & Francis Journals, vol. 9(13), pages 859-863.
    3. Jan Willem Gunning & Paul Collier, 1999. "Explaining African Economic Performance," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 64-111, March.
    4. Innocent U Duru & Millicent Adanne Eze & Abubakar Sadiq Saleh & Benedict I Uzoechina & Gabriel O Ebenyi & Ekechi Chukwuka, 2022. "Exchange Rate Volatility and Exports: The Nigerian Scenario," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 12(1), pages 11-28.

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