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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/18976
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| Title: | | Nominal exchange rate flexibility and real exchange rate adjustment : evidence from dual exchange rates in developing countries  |
| Authors: | | Cheung, Yin-Wong Lai, Kon-Sun |
| Issue Date: | | 2005 |
| Series/Report no.: | | CESifo working papers 1512 |
| Abstract: | | 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. |
| Subjects: | | real exchange rate fractional time series half life |
| JEL: | | C22 F31 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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