The Federal Reserve Board eagle logo links to Board's home page

International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Real Exchange Rate Movements in High Inflation Countries
John H. Rogers and Ping Wang
1995-501  (February 1995)

Abstract:  We empirically assess the sources of fluctuations in the real exchange rates of four high inflation countries, for which monetary shocks are generally believed to be predominant. In a benchmark model we identify fiscal, monetary, and output shocks based on a general-equilibrium optimizing model. We then estimate two alternative extensions. In the first, we decompose the output shock into supply and demand disturbances; in the second, the monetary shock is further decomposed into money supply and nominal exchange rate disturbances. Monetary shocks are found to be generally significant. Real shocks, especially those associated with government policy restrictions on the flow of currency, income from foreign investments, capital, and/or goods, are uniformly more influential however. The paper suggests that analyses of real exchange rates in high inflation economies using models emphasizing monetary shocks and sticky prices could be improved by not negtecting real shocks.

Full paper(591 KB PDF)

PDF files: Adobe Acrobat Reader   ZIP files: PKWARE

Home | IFDPs | List of 1995 IFDPs
Accessibility | Contact Us
Last update: September 17, 2008