IDEAS home Printed from https://ideas.repec.org/p/fau/wpaper/wp2022_18.html
   My bibliography  Save this paper

Exchange Rates and the Speed of Economic Recovery: The Role of Financial Development

Author

Listed:
  • Boris Fisera

    (Faculty of Social Sciences, Charles University, Prague & Institute of Economic Research, Slovak Academy of Sciences, Bratislava)

Abstract

We study the influence of the exchange rate on the speed of economic recovery in a sample of 67 developed and developing economies over the years 1989-2019. First, using a cross-sectional sample of 341 economic recoveries, we study the effect of nominal depreciation and real undervaluation on the length of economic recovery. Our findings indicate that both nominal depreciation and real undervaluation increase the speed of economic recovery. However, this finding only holds for smaller depreciations/ undervaluations. Second, we use an interacted panel VAR (IPVAR) model to investigate the effect of real undervaluation on the speed of economic recovery after external shock. While we once again find evidence that undervalued domestic currency increases the speed of economic recovery, its positive effect seems limited in size. Furthermore, we also explore the role of financial development in influencing the effectiveness of undervalued domestic currency in stimulating the economic recovery. We find that the higher level of financial development seems to limit the negative effect of an overvalued currency on the speed of economic recovery, but not to influence the effect of an undervalued currency on economic recovery.

Suggested Citation

  • Boris Fisera, 2022. "Exchange Rates and the Speed of Economic Recovery: The Role of Financial Development," Working Papers IES 2022/18, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2022.
  • Handle: RePEc:fau:wpaper:wp2022_18
    as

    Download full text from publisher

    File URL: https://ies.fsv.cuni.cz/en/veda-vyzkum/working-papers/6649
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Economic recovery; exchange rate; currency depreciation; real undervaluation; financial development; interacted panel VAR (IPVAR);
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fau:wpaper:wp2022_18. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Natalie Svarcova (email available below). General contact details of provider: https://edirc.repec.org/data/icunicz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.