Capital Inflows and the Real Exchange Rate: Analytical Framework and Econometric Evidence

50 Pages Posted: 15 Feb 2006

See all articles by Pierre-Richard Agenor

Pierre-Richard Agenor

University of Manchester - School of Social Sciences

Alexander W. Hoffmaister

International Monetary Fund (IMF) - Research Department

Date Written: December 1996

Abstract

This paper examines the links between capital inflows and the real exchange rate under pegged exchange rates. The analytical framework is described, and a near-VAR model linking capital inflows, interest rate differentials, government spending, money base velocity, and the temporary component of the real exchange rate (TCRER) is estimated for Korea, Mexico, the Philippines, and Thailand. TCRER movements are associated only weakly with shocks to capital flows. Negative shocks to U.S. interest rates lead to capital inflows in Asia and a TCRER appreciation in the Philippines and Thailand. Positive shocks to government spending have a small but statistically significant effect on the TCRER for Korea.

JEL Classification: E44, F32, F34

Suggested Citation

Agenor, Pierre-Richard and Hoffmaister, Alexander W., Capital Inflows and the Real Exchange Rate: Analytical Framework and Econometric Evidence (December 1996). IMF Working Paper, Vol. , pp. 1-50, 1996. Available at SSRN: https://ssrn.com/abstract=883034

Pierre-Richard Agenor (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Alexander W. Hoffmaister

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
140
Abstract Views
704
rank
210,108
PlumX Metrics