Trade Liberalization and Real Exchange Rate Movement

June 1, 2003

Preview Citation

Format: Chicago

Xiangming Li. Trade Liberalization and Real Exchange Rate Movement, (USA: International Monetary Fund, 2003) accessed November 21, 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

Although theory suggests that the real exchange rate should depreciate after a credible trade liberalization but could appreciate temporarily with a noncredible one, little empirical evidence exists. Unlike existing studies that use either indirect tests or unreliable openness measures, this paper uses an event study based on carefully 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 appreciate during early episodes, suggesting that partial or noncredible trade liberalizations are associated with real appreciation.

Subject: Balance of payments, Capital inflows, Foreign exchange, International trade, Real exchange rates, Tariffs, Taxes, Terms of trade, Trade liberalization

Keywords: Capital inflows, Cause individual, Credible trade liberalizations lead, Global, Liberalization datum, Only trade liberalization episode, Price level, Real exchange rate, Real exchange rates, Tariffs, Terms of trade, Trade intensity, Trade liberalization, Trade liberalization episode of a country, Trade liberalization events, Trade liberalization in Ghana, Trade liberalization in Guyana, Trade liberalizations lead, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/124
Stock No:

WPIEA1242003
ISBN:

9781451854749
ISSN:

1018-5941

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