Real Exchange Rate Volatility and the Price of Nontradables in Sudden-Stop-Prone Economies

Enrique Mendoza

No 2006/088, IMF Working Papers from International Monetary Fund

Abstract: This paper shows that the dominant view that the high variability of real exchange rates is due to movements in exchange rate-adjusted prices of tradable goods does not hold for Mexican data for periods with a managed exchange rate. The relative price of nontradables accounts for up to 70 percent of real exchange rate variability during these periods. The paper also proposes a model in which this fact, and the sudden stops that accompanied the collapse of Mexico's managed exchange rates, could result from a Fisherian debt-deflation mechanism operating via nontradables prices in economies with dollarized liabilities.

Keywords: WP; nominal exchange rate; equilibrium price; debt ceiling (search for similar items in EconPapers)
Pages: 34
Date: 2006-03-01
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Citations: View citations in EconPapers (4)

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Working Paper: Real Exchange Rate Volatility and the Price of Nontradables in Sudden-Stop-Prone Economies (2005)
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