We develop a simple macroeconomic model that assesses the effects of higher foreign aid on output growth and other macroeconomic variables, including the real exchange rate. The model is easily tractable and requires estimation of only a few basic parameters. It takes into account the impact of...

Intro -- Contents -- I. INTRODUCTION -- II. DATA AND METHODOLOGY -- III. MODELING AND INTERPRETING THE EQUILIBRIUM REAL EXCHANGE RATE -- IV. ASSESSING THE EQUILIBRIUM REAL EXCHANGE RATE -- V. CONCLUSIONS -- Appendix: Methodological Problems with Smoothing -- REFERENCES.