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Author Info

  • Shigeru Iwata
  • Evan Tanner

Abstract

We 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

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/92.

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Length: 28
Date of creation: 01 May 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/92

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Related research

Keywords: Emerging markets; Economic models; exchange rate; inflation; central bank; exchange rate regime; exchange rates; exchange rate flexibility; exchange rate regimes; monetary fund; monetary base; monetary policy; exchange rate policy; exchange rate movements; foreign exchange; monetary economics; exchange rate crisis; aggregate demand; flexible exchange rates; real exchange rate; monetary aggregates; exchange rate pass; exchange markets; exchange rate crises; money demand; fixed exchange rate; exchange rate depreciation; exchange rate risk; fixed exchange rate system; exchange rate shock; effective exchange rate; international monetary arrangements; monetary model; exchange risk; exchange rate volatility; history of exchange rate; exchange rate ? pass; exchange rate system; monetary arrangements; money supply; real exchange rates; exchange arrangements; exchange rate targeting; exchange rate adjustment; exchange rate appreciation; foreign exchange markets; exchange restrictions; exchange rate arrangements; relative exchange rate; money market;

References

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  1. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  2. Kloek, Tuen & van Dijk, Herman K, 1978. "Bayesian Estimates of Equation System Parameters: An Application of Integration by Monte Carlo," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 1-19, January.
  3. Fernandez-Arias, Eduardo & DEC, 1994. "The new wave of private capital inflows : push or pull?," Policy Research Working Paper Series 1312, The World Bank.
  4. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany.
  5. Eric Parrado & Andres Velasco, 2002. "Optimal Interest Rate Policy in a Small Open Economy," NBER Working Papers 8721, National Bureau of Economic Research, Inc.
  6. Amartya Lahiri & Carlos A. Vegh, 2001. "Living with the Fear of Floating: An Optimal Policy Perspective," NBER Working Papers 8391, National Bureau of Economic Research, Inc.
  7. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1453, C.E.P.R. Discussion Papers.
  8. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 39(3), pages 433-448, August.
  9. Sebastian Edwards, 2000. "Capital Flows, Real Exchange Rates, and Capital Controls: Some Latin American Experiences," NBER Chapters, National Bureau of Economic Research, Inc, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 197-246 National Bureau of Economic Research, Inc.
  10. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, Elsevier, vol. 41(3-4), pages 235-264, November.
  11. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 98(4), pages 463-84, December.
  12. Kouri, Pentti J K & Porter, Michael G, 1974. "International Capital Flows and Portfolio Equilibrium," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(3), pages 443-67, May/June.
  13. Kenneth Kletzer & Mark Spiegel, 1996. "Speculative capital inflows and exchange rate targeting in the Pacific Basin," Pacific Basin Working Paper Series, Federal Reserve Bank of San Francisco 96-05, Federal Reserve Bank of San Francisco.
  14. By May Khamis & Alfredo M. Leone, 2001. "Can Currency Demand Be Stable Under a Financial Crisis? The Case of Mexico," IMF Staff Papers, Palgrave Macmillan, vol. 48(2), pages 6.
  15. Kim, Soyoung, 2003. "Monetary policy, foreign exchange intervention, and the exchange rate in a unifying framework," Journal of International Economics, Elsevier, Elsevier, vol. 60(2), pages 355-386, August.
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Citations

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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, Department of Economics, University of Kent 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. Ibarra, Carlos A., 2004. "Capital Flows, Exchange Rate Regime, and Macroeconomic Performance in Mexico," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  4. Alex Luiz Ferreira, 2004. "Leaning Against the Parity," Studies in Economics, Department of Economics, University of Kent 0413, Department of Economics, University of Kent.
  5. Javier Gómez Pineda, . "Inflation Targeting, Sudden Stops and the Cost of Fear of Floating," Borradores de Economia 276, Banco de la Republica de Colombia.

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