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Exchange Rate Volatility and Growth in Emerging Europe and East Asia

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  • Gunther Schnabl

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Abstract

The paper investigates the impact of exchange rate volatility on growth in Emerging Europe and East Asia. Exchange stability has been argued to affect growth negatively as it deprives countries from the ability to react in a flexible way to asymmetric real shocks and may enhance the probability of speculative capital inflows and overheating. In contrast, exchange rate stability can be argued to affect growth in emerging market economies positively because transaction costs for international trade decline, uncertainty for international capital flows is less and macroeconomic stability is enhanced. Cross country panel estimations provide evidence for a negative impact of exchange rate volatility on growth both in Emerging Europe and East Asia.

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File URL: http://hdl.handle.net/10.1007/s11079-008-9084-6
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 20 (2009)
Issue (Month): 4 (September)
Pages: 565-587

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Handle: RePEc:kap:openec:v:20:y:2009:i:4:p:565-587

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Web page: http://www.springerlink.com/link.asp?id=100323

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Keywords: Exchange rate volatility; Growth; Emerging Europe; East Asia; F31;

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References

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  1. Atish R. Ghosh & Anne-Marie Gulde & Holger C. Wolf, 2003. "Exchange Rate Regimes: Choices and Consequences," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072408, December.
  2. Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," Research Department Publications 4339, Inter-American Development Bank, Research Department.
  3. Ronald McKinnon & Gunther Schnabl, 2004. "The Return to Soft Dollar Pegging in East Asia: Mitigating Conflicted Virtue," International Finance, Wiley Blackwell, vol. 7(2), pages 169-201, 07.
  4. Fidrmuc, Jarko & Korhonen, Iikka, 2006. "Meta-analysis of the business cycle correlation between the euro area and the CEECs," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 518-537, September.
  5. Fran Westermann & Romain Ranciere & Aaron Tornell, 2004. "Crises and Growth: A Re-evaluation," 2004 Meeting Papers 130, Society for Economic Dynamics.
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  7. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  8. Sebastian Edwards & Eduardo Levy Yeyati, 2004. "Flexible Exchange Rates as Shock Absorbers," Business School Working Papers exchangerates, Universidad Torcuato Di Tella.
  9. Kamps, Annette, 2006. "The euro as invoicing currency in international trade," Working Paper Series 0665, European Central Bank.
  10. DANNE, Christian & SCHNABL, Gunther, 2008. "A role model for China? Exchange rate flexibility and monetary policy in Japan," China Economic Review, Elsevier, vol. 19(2), pages 183-196, June.
  11. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  12. Philippe Aghion & Philippe Bacchetta & Romain Rancière & Kenneth Rogoff, 2005. "Productivity growth and the exchange rate regime: The role of financial development," Economics Working Papers 850, Department of Economics and Business, Universitat Pompeu Fabra.
  13. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The revived Bretton Woods system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 307-313.
  14. Ronald McKinnon & Gunther Schnabl, 2003. "Synchronized Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate," Working Papers 022003, Hong Kong Institute for Monetary Research.
  15. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers 7418, National Bureau of Economic Research, Inc.
  16. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate Of The Effect Of Common Currencies On Trade And Income," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 437-466, May.
  17. Ronald McKinnon & Gunther Schnabl, 2004. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 331-360, 08.
  18. Paul De Grauwe & Gunther Schnabl, 2004. "Exchange Rate Regimes and Macroeconomic Stability in Central and Eastern Europe," International Finance 0404011, EconWPA.
  19. Peter Backé & Balázs Égert & Zoltan Walko, 2007. "Credit Growth in Central and Eastern Europe Revisited," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2.
  20. Schnabl, Gunther, 2007. "Exchange rate volatility and growth in small open economies at the EMU periphery," Working Paper Series 0773, European Central Bank.
  21. Gunther Schnabl & Paul De Grauwe, 2004. "Nominal versus Real Convergence with Respect to EMU Accession - EMU Entry Scenarios for the New Member States," International Finance 0403008, EconWPA, revised 05 Jul 2004.
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Citations

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Cited by:
  1. Evžen Kočenda & Mathilde Maurel & Gunther Schnabl, 2013. "Short- and Long-term Growth Effects of Exchange Rate Adjustment," Review of International Economics, Wiley Blackwell, vol. 21(1), pages 137-150, 02.
  2. Evžen Kocenda & Mathilde Maurel & Gunther Schnabl, 2012. "Short-Term and Long-Term Growth Effects of Exchange Rate Adjustment," CESifo Working Paper Series 4018, CESifo Group Munich.
  3. Mathilde Maurel & Gunther Schnabl, 2012. "Keynesian and Austrian Perspectives on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth," Open Economies Review, Springer, vol. 23(5), pages 847-868, November.
  4. Schnabl, Gunther & Hoffmann, Andreas, 2007. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets - An Overinvestment View," MPRA Paper 5201, University Library of Munich, Germany.
  5. Aderbal Oliveira Damasceno & Flávio Vilela Vieir, 2014. "Desalinhamento Cambial, Volatilidade Cambial E Crescimento Econômico: Uma Análise Para A Economia Brasileira (1995-2011)," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting] 100, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  6. Rajan, Ramkishen, 2011. "Management of Exchange Rate Regimes in Emerging Asia," ADBI Working Papers 322, Asian Development Bank Institute.
  7. Brito, Márcio Holland de & Vieira, Flávio Vilela & Silva, Cleomar Gomes da & Bottecchia, Luiz Carlos, 2011. "Growth and exchange rate volatility: a panel data analysis," Textos para discussão 296, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  8. Schnabl, Gunther & Hoffmann, Andreas, 2010. "The theory of optimum currency areas and growth in emerging markets," Working Papers 84, University of Leipzig, Faculty of Economics and Management Science.

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