The Effects of Exchange Rate Fluctuations on Output and Prices: Evidence from Developing Countries

32 Pages Posted: 14 Feb 2006

See all articles by Magda Kandil

Magda Kandil

International Monetary Fund (IMF)

Ida A. Mirzaie

Research and Data Analysis; Economic Research Forum (ERF)

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

Kandil, Magda and Mirzaie, Ida A., The Effects of Exchange Rate Fluctuations on Output and Prices: Evidence from Developing Countries (October 2003). IMF Working Paper No. 03/200, Available at SSRN: https://ssrn.com/abstract=880837

Magda Kandil (Contact Author)

International Monetary Fund (IMF) ( email )

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Washington, DC 20431
United States

Ida A. Mirzaie

Research and Data Analysis ( email )

3015 NW View Road
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United States

Economic Research Forum (ERF) ( email )

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