The Asymmetric Effects of Exchange Rate Fluctuations: Theory and Evidence from Developing Countries

33 Pages Posted: 1 Feb 2006

See all articles by Magda Kandil

Magda Kandil

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2000

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.

Keywords: Exchange rate, rational expectations, asymmetric fluctuations

JEL Classification: E30, E31, F4

Suggested Citation

Kandil, Magda, The Asymmetric Effects of Exchange Rate Fluctuations: Theory and Evidence from Developing Countries (November 2000). IMF Working Paper No. 00/184, Available at SSRN: https://ssrn.com/abstract=880268

Magda Kandil (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
191
Abstract Views
1,553
Rank
176,232
PlumX Metrics