Resource title

Nominal exchange rate flexibility and real exchange rate adjustment : evidence from dual exchange rates in developing countries

Resource image

image for OpenScout resource :: Nominal exchange rate flexibility and real exchange rate adjustment : evidence from dual exchange rates in developing countries

Resource description

This study investigates whether exchange rate flexibility aids real exchange rate adjustment based on intra-period data on dual exchange rates from developing countries. Specifically, it analyzes whether the flexible parallel market rate produces faster or slower real exchange rate adjustment than the much less flexible official rate does. Half-life estimates of adjustment speeds are obtained using fractional time series analysis. We find no systematic evidence that greater exchange rate flexibility tends to produce faster or slower real exchange rate adjustment, albeit there is substantial heterogeneity in speed estimates across countries. With officially pegged exchange rates, developing countries often use parallel exchange markets as a back-door channel to facilitate real exchange rate adjustment, but the empirical evidence suggests that these parallel markets in most cases fail to help promote real rate adjustment.

Resource author

Yin-Wong Cheung, Kon-Sun Lai

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/18976

Resource license

Adapt according to the presented license agreement and reference the original author.