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Pick Your Poison: The Exchange Rate Regime and Capital Account Volatility in Emerging Markets

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Author Info

  • Shigeru Iwata

    ()
    (Department of Economics University of Kansas)

  • Evan Tanner

    ()
    (International Monetary Fund / IMF Institute)

Abstract

The authors characterize a country’s exchange rate regime by how its central bank channels a capital account shock across three variables: exchange depreciation, interest rates, and international reserve flows. Structural vector autoregression estimates for Brazil, Mexico, and Turkey reveal such responses, both contemporaneously and over time. Capital account shocks are further shown to affect output growth and inflation. The nature and magnitude of these effects may depend on the exchange rate regime.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 57 (2007)
Issue (Month): 7-8 (September)
Pages: 363-381

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Handle: RePEc:fau:fauart:v:57:y:2007:i:7-8:p:363-381

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Keywords: exchange rate regime; capital account; structural vector autoregression;

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References

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  1. Fernandez-Arias, Eduardo, 1996. "The new wave of private capital inflows: Push or pull?," Journal of Development Economics, Elsevier, vol. 48(2), pages 389-418, March.
  2. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," Working Paper 95-7, Federal Reserve Bank of Atlanta.
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  4. Kim, Soyoung, 2003. "Monetary policy, foreign exchange intervention, and the exchange rate in a unifying framework," Journal of International Economics, Elsevier, vol. 60(2), pages 355-386, August.
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  9. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
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  11. Sebastian Edwards, 1998. "Capital Flows, Real Exchange Rates, and Capital Controls: Some Latin American Experiences," NBER Working Papers 6800, National Bureau of Economic Research, Inc.
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  14. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
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Cited by:
  1. Alex Luiz Ferreira, 2004. "Are Real Interest Differentials Caused by Frictions in Goods or Assets Markets, Real or Nominal Shocks?," Studies in Economics 0407, Department of Economics, University of Kent.
  2. Javier Gómez, 2004. "Inflation Targeting and Sudden Stops," BORRADORES DE ECONOMIA 002854, BANCO DE LA REPÚBLICA.
  3. Alex Luiz Ferreira, 2004. "Leaning Against the Parity," Studies in Economics 0413, Department of Economics, University of Kent.
  4. Javier Gómez Pineda, . "Inflation Targeting, Sudden Stops and the Cost of Fear of Floating," Borradores de Economia 276, Banco de la Republica de Colombia.
  5. Ibarra, Carlos A., 2004. "Capital Flows, Exchange Rate Regime, and Macroeconomic Performance in Mexico," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).

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