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

Jean-Louis Combes, Patrick Plane and Tidiane Kinda

No 2011/009, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; nominal exchange rate; Private capital flows; real exchange rate; exchange rate flexibility; emerging markets; low-income countries; pooled mean group estimator; REER appreciation; appreciation effect; FDI flow; exchange rate volatility; exchange rate determination model; index of exchange rate flexibility; appreciation of the real effective exchange rate; exchange rate regime choice; exchange rate system; income effect; exchange rate flexibility variable; dependent variable; Real exchange rates; Capital inflows; Real effective exchange rates; Exchange rate arrangements; Asia and Pacific; Global (search for similar items in EconPapers)
Pages: 34
Date: 2011-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=24562 (application/pdf)

Related works:
Journal Article: Capital flows, exchange rate flexibility, and the real exchange rate (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2011/009

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().