Real exchange rate movements in high inflation countries

John Rogers and Ping Wang

No 501, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We empirically assess the sources of fluctuations in the real exchange rates of four high inflation countries, for which monetary shocks are generally believed to be predominant. In a benchmark model we identify fiscal, monetary, and output shocks based on a general-equilibrium optimizing model. We then estimate two alternative extensions. In the first, we decompose the output shock into supply and demand disturbances; in the second, the monetary shock is further decomposed into money supply and nominal exchange rate disturbances. Monetary shocks are found to be generally significant. Real shocks, especially those associated with government policy restrictions on the flow of currency, income from foreign investments, capital, and/or goods, are uniformly more influential however. The paper suggests that analyses of real exchange rates in high inflation economies using models emphasizing monetary shocks and sticky prices could be improved by not negtecting real shocks.

Keywords: Foreign exchange rates; Inflation (Finance) (search for similar items in EconPapers)
Date: 1995
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.federalreserve.gov/pubs/ifdp/1995/501/default.htm (text/html)
http://www.federalreserve.gov/pubs/ifdp/1995/501/ifdp501.pdf (application/pdf)

Related works:
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:fip:fedgif:501

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().