Real and monetary determinants of real exchange rate behavior: Theory and evidence from developing countries

Edwards, Sebastián

doi:10.1016/0304-3878(88)90048-x

Cited by 254 publications

(267 citation statements)

References 14 publications

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“…For Australia and New Zealand, they find evidence of a strong and stable correlation between the US dollar price of commodities and the REER, the long-run elasticity ranging from 0.73 to 1.01 for Australia and New-Zealand respectively. It is in line with Gruen and Wilkinson (1994) and Gruen and Kortian (1996) whose analyses point out the power of predictability of the terms-of-trade on the Australian currency over the period 1969-1994. Cashin et al (2004 expand the analysis to a set of 58 developped and developing countries over the period 1980-2002.…”

Section: Commodity-exporting Countriessupporting

confidence: 80%

Energy Prices and the Real Exchange Rate of Commodity-Exporting Countries

Dauvin

2014

SSRN Journal

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This paper investigates the relationship between energy prices and the real effective exchange rate of commodity-exporting countries. We consider two sets of countries: 10 energy-exporting and 23 non-fuel commodity-exporting countries over the period 1980-2011. Estimating a panel cointegrating relationship between the real exchange rate and its fundamentals, we provide evidence for the existence of "energy currencies". Relying on the estimation of panel smooth transition regression (PSTR) models, we show that there exists a certain threshold beyond which the real effective exchange rate of both energy and commodity exporters reacts to oil prices, through the terms-of-trade. More specifically, when oil price variations are low, the real effective exchange rates are not determined by terms-of-trade but by other usual fundamentals. Nevertheless, when the oil market is highly volatile, currencies follow an "oil currency" regime, terms-of-trade becoming an important driver of the real exchange rate.JEL Classification: C33, F31, 013, Q43

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Section: Commodity-exporting Countriessupporting

confidence: 80%

Energy Prices and the Real Exchange Rate of Commodity-Exporting Countries

Dauvin

2014

SSRN Journal

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“…In this paper, along with several variables considered in Ba¤es et al (1999), I include government consumption as a share of GDP to proxy changes in …scal policy and then assume there exists a long-run 1 0 Di¤erent sets of determinants have been considered by various studies. For some examples see Edwards (1989Edwards ( , 1994, Elbadawi (1994), Elbadawi and Soto (1994), Feyzioglu (1997) equilibrium real exchange relationship in log-linear form, which can be written as:…”

Section: Econometric Speci…cation and Methodsologymentioning

confidence: 99%

“…However, given the number of cross-sections (N ) and time span (T ) available in our dataset, this is not a feasible option as it demands many degrees of freedom. 16 Williamson, 1994; Devarajan, 1997, Ba¤es et al, 1999. 1 4 Pesaran et al (1999) discuss alternative estimation methods for dynamic panels, including the seemingly unrelated regression equation (SURE) procedure, the Mean Group (MG) approach, the Pooled Mean Group (PMG) approach, the traditional methods -…xed e¤ects (FE), instrumental variables (IV) and generalized method of moments (GMM) -and the Bayes approach.…”

Section: Econometric Speci…cation and Methodsologymentioning

confidence: 99%

“…Broadly speaking, most researchers agree with Nurkse's (1945) de…nition of the LRER, but di¤er on what constitutes the best choice of determinants and empirical approach. 5 In principle, changes in RER can be captured in many ways: using traditional single-equation reduced-form model (Edwards, 1989(Edwards, , 1994; Razin and Collins, 1997), by using cointegrating equations (Elbadawi, 1994 This paper focuses on the behaviour of the real e¤ective exchange rate (REER) within the CFA Franc zone of Africa which has been in existence since 1948, and is currently made up of fourteen di¤erent mainly former French colonies that have come together to form two monetary unions. The …xed parity with the French Franc has been adjusted only once in January of 1994 through a 100% collective devaluation.…”

Section: Introductionmentioning

confidence: 99%

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Estimating Equilibrium Real Exchange Rates in the Franc Zone

Coleman

2008

Journal of African Economies

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In the CFA Franc zone of sub-Saharan Africa, the collective devaluation in 1994 remains the most important incident in its history. It sought to put an end to the worsening overall macroeconomic position of the zone. Using seemingly unrelated regression equations (SURE) analysis, this paper estimates the real e¤ective exchange rate and degree of misalignment in 12 Franc zone countries over the period 1960-99, allowing for contemporaneous error covariance due to observed cross-sectional dependence. The evidence suggests some signi…cant di¤erences among member states, however the largest economies -Cameroon, Côte d'Ivoire and Senegal -showed some striking similarities: just prior to the devaluation, they were much more overvalued relative to the smaller member states, most of which were either only marginally misaligned or virtually in equilibrium. In 1994, only Côte d'Ivoire is exactly in equilibrium as a result of the devaluation. Analysis of the post-1994 period suggests that some challenges lie ahead for the Franc zone, if …xed parity is to be maintained.

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“…Edwards also analyses equilibrium exchange rate behaviour and RER overvaluation by asking how the equilibrium real exchange rate reacts to changes in degree of restrictions to intra-and inter-temporal trade and the effects of a change in the degree of capital controls [7,8], he finds first, that tariff liberalization does not necessarily result in an equilibrium real depreciation but depends on key parameters, second, that the substitution effect dominates the income effect under more restrictive conditions, and third, that expected future tariff hikes generate an equilibrium real appreciation in the current period.…”

Section: The Edwards' (1987) Modelmentioning

confidence: 99%

Estimating the Equilibrium Real Exchange Rate in Algeria during the period: 1980-2015

Yahia¹,

Djeddi²,

Louafi³

2017

JFE

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The aim of this paper is to estimate the long-run Equilibrium Real Exchange Rate (ERER) path using VECM approach, and assesses the degree of misalignment in Algeria. Based on annual data from 1980 to 2015, our results show that the macroeconomic variables such as terms of trade, trade openness, differential productivity with trading partners (Balassa-Samuelson effect), real price of oil, and government expenditures, plays significant role in determining the equilibrium of Algeria's ERER, the results also reveal that Algerian economy suffered from RER misalignment. As finding, and according to the Edwards' [6] Model and the Cashin's [2] model, results showed same evidences that there are three episodes of undervaluation of the Algerian dinar's and also three episodes of overvaluation, the seventh episode (2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015) shows that the Actual ERER appears to have been close to its estimated equilibrium.

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Real and monetary determinants of real exchange rate behavior: Theory and evidence from developing countries

Cited by 254 publications

References 14 publications

Energy Prices and the Real Exchange Rate of Commodity-Exporting Countries

Energy Prices and the Real Exchange Rate of Commodity-Exporting Countries

Estimating Equilibrium Real Exchange Rates in the Franc Zone

Estimating the Equilibrium Real Exchange Rate in Algeria during the period: 1980-2015

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