Capital flows, exchange rate flexibility, and the real exchange rate

Jean-Louis Combes, Tidiane Kinda and Patrick Plane

Journal of Macroeconomics, 2012, vol. 34, issue 4, 1034-1043

Abstract: This paper first analyzes the impact of capital inflows on the real effective exchange rate for a sample of 42 emerging and developing countries over the period 1980–2006. The results from the pooled mean group estimator show that both public and private inflows are associated with an appreciation of the real effective exchange rate. Among private inflows, portfolio investments display the biggest impact on the appreciation – almost seven times that of foreign direct investment or bank loans – while private transfers have the smallest effect. The paper also shows that a more flexible exchange rate regime, measured by different indicators, could effectively dampen the real appreciation associated with capital inflows, supporting countries’ competitiveness.

Keywords: Capital flows; Real effective exchange rate; Exchange rate flexibility; Emerging markets; Developing countries; Panel cointegration (search for similar items in EconPapers)
JEL-codes: F21 F31 F32 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (76)

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Working Paper: Capital Flows, Exchange Rate Flexibility, and the Real Exchange Rate (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:34:y:2012:i:4:p:1034-1043

DOI: 10.1016/j.jmacro.2012.08.001

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