The Effects of Exchange Rate Fluctuationson Output and Prices: Evidence From Developing Countries

October 1, 2003

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

The paper examines the effects of exchange rate fluctuations on real output and the price level in a sample of 33 developing countries. The theoretical model decomposes movements in the exchange rate into anticipated and unanticipated components. Unanticipated currency fluctuations help to determine aggregate demand through exports, imports, and the demand for domestic currency, and aggregate supply through the cost of imported intermediate goods. Anticipated exchange rate depreciation, through the supply channel, has limited effects on output growth and inflation. Unanticipated currency fluctuations appear more significant, with varying effects on output growth and price inflation across developing countries.

Subject: Currencies, Energy pricing, Exchange rates, Expenditure, Foreign exchange, Inflation, Money, Prices, Real exchange rates

Keywords: aggregate demand, anticipated vs. unanticipated appreciation, Currencies, currency appreciation, currency depreciation, energy price, energy price increase, Energy pricing, error correction term, exchange rate, exchange rate fluctuation, Exchange rates, Fluctuationson output, Inflation, money supply, output price, price deflation, price inflation, price surprise, production function, real and inflationary effects, Real exchange rates, supply vs. demand channels, WP

Pages:
32
Volume:
2003
DOI:
https://doi.org/10.5089/9781451860184.001
Issue:
200
Series:
Working Paper No. 2003/200
Stock No:
WPIEA2002003
ISBN:
9781451860184
ISSN:
1018-5941

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