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Real Shock or Nominal Shock? Exchange Rate Movements in Cambodia and Lao PDR

Seiha Ok, Makoto Kakinaka and Hiroaki Miyamoto
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Seiha Ok: National Audit Authority of Cambodia

No EMS_2010_05, Working Papers from Research Institute, International University of Japan

Abstract: This paper discusses a primary factor responsible for exchange rate fluctuations of the Cambodian riel and the Laotian kip against the US dollar. The dynamic effects of real and nominal shocks are examined through applying a vector autoregression (VAR) model of real and nominal exchange rates under the assumption of the long-run neutrality of nominal shocks on real exchange rates. This approach allows us to decompose exchange rate movements into two components, real and nominal factors, in order to identify how these factors influence exchange rate fluctuations. The empirical analysis demonstrates that real shocks in direction of depreciation lead to real and nominal depreciation, while nominal shocks induce long-run nominal depreciation but real appreciation in the short-run.

Keywords: Real and nominal exchange rates; Real and nominal shocks; SVAR analysis; Cambodia and Lao PDR (search for similar items in EconPapers)
Pages: 35 pages
Date: 2010-04
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https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2010_05.pdf First version, 2010 (application/pdf)

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Journal Article: REAL SHOCK OR NOMINAL SHOCK? EXCHANGE RATE MOVEMENTS IN CAMBODIA AND LAO PDR (2010) Downloads
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