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Title: The impact of conflict on the exchange rate of developing economies
Authors: Michail, Nektarios A. 
Major Field of Science: Social Sciences
Field Category: Economics and Business
Keywords: Civil war;Conflict;Developing economies;Nominal exchange rate;Shadow exchange rate
Issue Date: May-2021
Source: Review of Development Economics, 2021, vol. 25, no. 2, pp. 916 - 930
Volume: 25
Issue: 2
Start page: 916
End page: 930
Journal: Review of Development Economics 
Abstract: This paper explores the impact different types of conflict have on the nominal exchange rate (NER), using a panel of developing economies. Accounting for NER determinants, the evidence suggests that in addition to the depreciation caused by macroeconomic factors, intra-state (civil) wars have a strong and significant depreciative impact on the exchange rate. In contrast, international wars do not appear to have any excess effect. A potential explanation of this phenomenon is that, unlike international wars where winners and losers are more difficult to distinguish a priori, in civil wars the country is much more likely to face economic deterioration, therefore promoting an over-discounting effect. The findings provide insights for both investors and policymakers given that exchange rate devaluation can likely provide a negative feedback mechanism to the local economy, especially if they hold foreign currency debt. The depreciation could also potentially have strong effects on the long-run growth potential, considering that most developing economies rely on imports of capital goods for research and development purposes.
ISSN: 1467-9361
DOI: 10.1111/rode.12749
Rights: © John Wiley
Attribution-NonCommercial-NoDerivatives 4.0 International
Type: Article
Affiliation : Central Bank of Cyprus 
Cyprus Business School 
Cyprus University of Technology 
Appears in Collections:Άρθρα/Articles

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