The Effects of Exchange Rate Fluctuations on Output and Prices: Evidence from Developing Countries
32 Pages Posted: 14 Feb 2006
Date Written: October 2003
Abstract
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.
Keywords: exchange rate, anticipated vs. unanticipated appreciation, supply vs. demand channels, real and inflationary effects
JEL Classification: F41, F43, E31
Suggested Citation: Suggested Citation
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