Implications of a US Dollar Depreciation for Asian Developing Countries

Date: November 2002
Type: Papers and Briefs
Subject:
Economics; Finance
Series: ERD Policy Briefs
ISSN: 1655-5260 (print)

Description

The US dollar has appreciated considerably since the mid 1990s. Between May 1995 and January 2002, the dollar's nominal effective exchange rate appreciated by 44.5 percent, and the real effective exchange rate appreciated 34.0 percent. However, the dollar depreciated between 1 March and 19 July 2002 by 17.4 percent against the euro, and 13.2 percent against the yen. In the same period, the dollar's nominal effective exchange rate depreciated by 3.9 percent, while its real effective exchange rate depreciated 4.0 percent. This has prompted speculation that the dollar may have started a major realignment, though a moderate appreciation since July has somewhat muted this speculation.

Contents

  • Exchange Rate Arrangements of DMCs
  • Analytical Framework
  • Dollar Depreciation and Trade Balance
  • Dollar Depreciation and Macroeconomic Indicators
  • Empirical Evidence in Asia
  • What Explains the Gap between Theory and Empirical Outcomes?
  • Conclusion
  • References