Exchange Rate, Capital Flow and Output: Developed versus Developing Economies

Gil Kim, Lian An, Yoonbai Kim

Research output: Contribution to journalArticlepeer-review

12 Scopus citations


This paper aims to study the impact of exchange rate and capital flows on output in one unifying model. To explore this issue, we apply a vector auto-regression (VAR) model with Cholesky decomposition to a group of developed economies (Canada, Switzerland, Australia, Italy, the Netherlands, and Spain) and developing economies (Mexico, Indonesia, Korea, Malaysia, Philippines, Brazil, and Chile). The sample period varies for each country with the longest for Switzerland (1970:1–2010:3) and the shortest for Chile (1996:1–2010:3). The findings suggest first that contractionary devaluation is more likely to happen in developing countries while expansionary devaluation is more prevalent in developed countries. Second, the current account tends to improve in some of the countries facing currency depreciation. However, whether output increases after a real devaluation or not has little to do with whether the current account improves or not. Third, in response to capital inflows, output in developed countries are largely unaffected, while output in developing countries generally increases.

Original languageEnglish
Pages (from-to)195-207
Number of pages13
JournalAtlantic Economic Journal
Issue number2
StatePublished - Jun 29 2015

Bibliographical note

Publisher Copyright:
© 2015, International Atlantic Economic Society.


  • Contractionary effects
  • Devaluation
  • VAR model

ASJC Scopus subject areas

  • General Economics, Econometrics and Finance


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