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

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  • Mr. Shigeru Iwata
  • Mr. Evan C 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.

Suggested Citation

  • Mr. Shigeru Iwata & Mr. Evan C Tanner, 2003. "Pick Your Poison: The Exchange Rate Regime and Capital Account Volatility in Emerging Markets," IMF Working Papers 2003/092, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2003/092
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    Cited by:

    1. Murat Tasdemir & Abdullah Yalama, 2010. "Inter-Regional Volatility Spillovers Between Emerging Capital Markets: Evidence From Turkey And Brazil," Working Papers 2010/8, Turkish Economic Association, revised Jan 2010.
    2. Alex Luiz Ferreira, 2004. "Leaning Against the Parity," Studies in Economics 0413, School of Economics, University of Kent.
    3. Alex Luiz Ferreira, 2004. "Are Real Interest Differentials Caused by Frictions in Goods or Assets Markets, Real or Nominal Shocks?," Studies in Economics 0407, School of Economics, University of Kent.
    4. Murat Taşdemir & Abdullah Yalama, 2014. "Volatility Spillover Effects in Interregional Equity Markets: Empirical Evidence from Brazil and Turkey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(2), pages 190-202, March.
    5. Javier Gómez, 2004. "Inflation Targeting and Sudden Stops," Borradores de Economia 2854, Banco de la Republica.
    6. Carlos A. Ibarra, 2004. "Capital Flows, Exchange Rate Regime, and Macroeconomic Performance in Mexico," WIDER Working Paper Series RP2004-27, World Institute for Development Economic Research (UNU-WIDER).
    7. Javier Gómez Pineda, 2004. "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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    More about this item

    Keywords

    WP; exchange rate; exchange rate regime; capital account; structural vector autoregression; band era; interest rate hike; exchange rate crisis; exchange rate pass-through effect; capital market shock; exchange rate movement; Reponses eN; interest rate change; country's exchange rate regime; exchange rate shock; exchange rate pass-through channel; exchange rate regime assumption; Exchange rate arrangements; Exchange rates; Exchange rate flexibility; Inflation; Global;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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