Capital Flows, Exchange Rate Flexibility, and the Real Exchange Rate

Capital Flows, Exchange Rate Flexibility, and the Real Exchange Rate PDF

Author: Mr.Tidiane Kinda

Publisher: International Monetary Fund

Published: 2011-01-01

Total Pages: 35

ISBN-13: 1455211877

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This paper analyzes the impact of capital inflows and exchange rate flexibility on the real exchange rate in developing countries based on panel cointegration techniques. The results show that public and private flows are associated with a real exchange rate appreciation. Among private flows, portfolio investment has the highest appreciation effect-almost seven times that of foreign direct investment or bank loans-and private transfers have the lowest effect. Using a de facto measure of exchange rate flexibility, we find that a more flexible exchange rate helps to dampen appreciation of the real exchange rate stemming from capital inflows.

Capital Inflows and the Real Exchange Rate

Capital Inflows and the Real Exchange Rate PDF

Author: Mr.Alexander W. Hoffmaister

Publisher: International Monetary Fund

Published: 1996-12-01

Total Pages: 50

ISBN-13: 1451855877

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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.

Fiscal Imbalances, Capital Inflows, and the Real Exchange Rate

Fiscal Imbalances, Capital Inflows, and the Real Exchange Rate PDF

Author: E. Murat Ucer

Publisher: International Monetary Fund

Published: 1997-01-01

Total Pages: 31

ISBN-13: 1451841590

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This paper examines the links between fiscal policy, capital inflows, and the real exchange rate in Turkey since the late 1980s. After an overview of recent macroeconomic developments in Turkey, a vector autoregression model is estimated linking government spending, interest rate differentials, capital inflows, and the temporary component of the real exchange rate. Positive shocks to government spending and capital inflows lead to an appreciation of the temporary component of the real exchange rate, whereas positive shocks to the uncovered interest rate differential lead to a capital inflow and an appreciation of the temporary component of the real exchange rate. The findings highlight the role of fiscal adjustment in restoring macroeconomic stability.

Exchange Rates, Capital Flows, and Monetary Policy in a Changing World Economy

Exchange Rates, Capital Flows, and Monetary Policy in a Changing World Economy PDF

Author: William C. Gruben

Publisher: Springer Science & Business Media

Published: 1997-08-31

Total Pages: 274

ISBN-13: 9780792399087

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The dramatic growth of international capital flow has provided unprecedented opportunities and risks in emerging markets. This book is the result of a conference exploring this phenomenon, sponsored by the Federal Reserve Bank of Dallas. The issues explored include direct versus portfolio investment; exchange rates and economic growth; and optimal exchange rate policy for stabilizing inflation in developing countries. It concludes with a panel discussion on central bank coordination in the midst of exchange rate instability.

When and Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease and Growth

When and Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease and Growth PDF

Author: International Monetary Fund

Publisher: International Monetary Fund

Published: 2010-12-01

Total Pages: 34

ISBN-13: 1455210781

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We review the literature on Dutch disease, and document that shocks that trigger foreign exchange inflows (such as natural resource booms, surges in foreign aid, remittances, or capital inflows) appreciate the real exchange rate, generate factor reallocation, and reduce manufacturing output and net exports. We also observe that real exchange rate misalignment due to overvaluation and higher volatility of the real exchange rate lower growth. Regarding the effect of undervaluation of the exchange rate on economic growth, the evidence is mixed and inconclusive. However, there is no evidence in the literature that Dutch disease reduces overall economic growth. Policy responses should aim at adequately managing the boom and the risks associated with it.

Capital Inflows and the Real Exchange Rate

Capital Inflows and the Real Exchange Rate PDF

Author: Christian Saborowski

Publisher: International Monetary Fund

Published: 2009-01-01

Total Pages: 44

ISBN-13: 1451871678

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This paper argues that, in improving the efficient allocation of resources, financial sector development could dampen the appreciation effect of capital inflows. Using dynamic panel data techniques, the paper finds that the exchange rate appreciation effect of FDI inflows is indeed attenuated when financial and capital markets are larger and more active. The main implication of these results is that one of the main dangers associated with large capital inflows in emerging markets-the destabilization of macroeconomic management due to a sizeable appreciation of the real exchange rate-can be mitigated partly by developing a deep financial sector.

Capital Inflows and the Real Exchange Rate

Capital Inflows and the Real Exchange Rate PDF

Author: Pierre-Richard Agenor

Publisher:

Published: 2006

Total Pages: 50

ISBN-13:

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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.

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