Search IMF Staff Papers


Advanced Search
Journal Description

Editorial Committee

How to Subscribe

Forthcoming Articles

Staff Papers Archive

Copyright Information

Research at the IMF

Free Email Notification

Receive emails when we post new items of interest to you.

Subscribe or Modify your profile





IMF Staff Papers Logo    Last updated: November 2004
Volume 51, Number 3
 
Trade Liberalization and Real Exchange Rate Movement
Xiangming Li

Full Text of this Article (PDF 189K)

Although theory suggests that the real exchange rate should depreciate after a permanent trade liberalization but could appreciate temporarily with a transitory one, little empirical evidence exists. Unlike existing studies that use either indirect tests or openness measures that could be unreliable, this paper uses an event study based on individually documented trade liberalization in 45 countries. The result shows that real exchange rates depreciate after countries open their economies to trade. In countries with multiple liberalization episodes, however, real exchange rates do not depreciate at the start of trade liberalization in early episodes, suggesting that partial or transitory trade liberalizations deter adjustments toward the equilibrium exchange rate. [JEL F40, F31]