Response of the Equilibrium Real Exchange Rate to Real Disturbances in Developing Countries

January 1, 1991

Preview Citation

Format: Chicago

Mohsin S. Khan, and Jonathan David Ostry. Response of the Equilibrium Real Exchange Rate to Real Disturbances in Developing Countries, (USA: International Monetary Fund, 1991) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using a simple dependent - economy framework, this paper outlines the links between the equilibrium real exchange rate and some of its fundamental exogenous determinants, mainly terms of trade movements and commercial policy changes. Drawing on existing studies of trade flows in developing countries, it is possible to derive plausible quantitative ranges for the response of the equilibrium real exchange rate to both external and policy-induced shocks. The results should be particularly relevant in designing real exchange rate targets and rules that allow for movements in the equilibrium real exchange rate in response to various shocks.

Subject: Demand elasticity, Personal income, Real exchange rates, Tariffs, Terms of trade

Keywords: Exchange rate, Exchange rate rule, Real exchange rate, WP

Publication Details

Pages:

18
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1991/003
Stock No:

WPIEA0031991
ISBN:

9781451841800
ISSN:

1018-5941

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