Exchange rate adjustment under generalized currency floating : comparative analysis among developing countries

This study examines the experience of a sample of 22 LDCs relating to exchange rate changes under generalized currency floating with a view to drawing some implications for LDC policymaking. Section II develops the framework of analysis, identifying the basic sources of effective exchange rate (EER) changes under the post-Bretton Woods regime which give rise to relative price effects on LDC export supply. Major currency realignments are found to have caused a general decline in export competitiveness in the majority of sample countries. However, both in terms of trend and variability, the relative price effect due to foreign exchange rate changes has generally been smaller than the observed real exchange rate adjustments. It would appear that the price response to exchange rate adjustments in the post-Bretton Woods period is to a very high order of practical importance to LDC policymakers, since about 80 percent of the nominal currency depreciation is estimated to have been added ultimately to the general price level. The concluding part of this paper, Section VI, appraises the findings of the study, discusses the implications for policymaking in developing countries and indicates directions for further research.