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Fear of Appreciation

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Author Info

  • Levy-Yeyati, Eduardo
  • Sturzenegger, Federico
  • Gluzmann, Pablo

Abstract

In recent years the term “fear of floating” has been used to describe exchange rate regimes that, while officially flexible, in practice intervene heavily to avoid sudden or large depreciations. However, the data reveals that in most cases (and increasingly so in the 2000s) intervention has been aimed at limiting appreciations rather than depreciations, often motivated by the neomercantilist view of a depreciated real exchange rate as protection for domestic industries. As a first step to address the broader question of whether this view delivers on its promise, we examine whether this “fear of appreciation” has a positive impact on growth performance in developing economies. We show that depreciated exchange rates indeed lead to higher growth, but that the effect, rather than through import substitution or export booms as argued by the mercantilist view, works largely through the deepening of domestic savings and capital accumulation.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42917.

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Date of creation: Nov 2007
Date of revision: Nov 2012
Handle: RePEc:pra:mprapa:42917

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Keywords: exchange rate regimes; fear of floating; economic growth; real exchange rates;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Understanding the issue of Currency Wars
    by Amol Agrawal in Mostly Economics on 2010-11-16 12:19:40
  2. Réquiem para el modelo de sustitución de importaciones
    by ELY in Blog de Eduardo Levy Yeyati on 2011-02-25 23:20:00
  3. La Insoportable Levedad del RER
    by Generico in Economista Serial Crónico on 2010-04-07 11:18:00
  4. Falso trilema (para econs)
    by Javier Finkman in Exabruptos on 2010-05-14 09:24:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Berganza, Juan Carlos & Broto, Carmen, 2012. "Flexible inflation targets, forex interventions and exchange rate volatility in emerging countries," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 428-444.
  2. Pierre-Guillaume Méon & Geoffrey Minne, 2011. "Mark my Words: Information and the Fear of Declaring one’s Exchange Rate Regime," Working Papers CEB 11-040, ULB -- Universite Libre de Bruxelles.
  3. Razmi, Arslan & Rapetti, Martin & Skott, Peter, 2012. "The real exchange rate and economic development," Structural Change and Economic Dynamics, Elsevier, vol. 23(2), pages 151-169.
  4. Grier, Kevin B. & Smallwood, Aaron D., 2013. "Exchange rate shocks and trade: A multivariate GARCH-M approach," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 282-305.
  5. Marc Pourroy, 2013. "Inflation-Targeting and Foreign Exchange Interventions in Emerging Economies," Documents de travail du Centre d'Economie de la Sorbonne 13074, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  6. Andreas Steiner, 2010. "The Accumulation of Foreign Exchange by Central Banks: Fear of Capital Mobility?," Working Papers 85, Institute of Empirical Economic Research.
  7. Cruz Rodriguez, Alexis, 2009. "Choosing and assessing exchange rate regimes: A survey of the literature," MPRA Paper 16314, University Library of Munich, Germany.
  8. Chowdhury, Mohammad Tarequl H. & Bhattacharya, Prasad Sankar & Mallick, Debdulal & Ulubaşoğlu, Mehmet Ali, 2014. "An empirical inquiry into the role of sectoral diversification in exchange rate regime choice," European Economic Review, Elsevier, vol. 67(C), pages 210-227.
  9. Aizenman, Joshua, 2011. "Hoarding international reserves versus a Pigovian tax-cum-subsidy scheme: Reflections on the deleveraging crisis of 2008-2009, and a cost benefit analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1502-1513, September.
  10. Couharde, Cécile & Sallenave, Audrey, 2013. "How do currency misalignments’ threshold affect economic growth?," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 106-120.
  11. Marc Pourroy, 2013. "Inflation-Targeting and Foreign Exchange Interventions in Emerging Economies," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00881359, HAL.
  12. Eduardo Levy-Yeyati, 2011. "Exchange Rate Regimes," Business School Working Papers 2011-02, Universidad Torcuato Di Tella.
  13. Erick Lahura & Marco Vega, 2013. "Asymmetric effects of FOREX intervention using intraday data: evidence from Peru," BIS Working Papers 430, Bank for International Settlements.
  14. de la Torre, Augusto & Didier, Tatiana & Pinat, Magali, 2014. "Can Latin America tap the globalization upside ?," Policy Research Working Paper Series 6837, The World Bank.
  15. César Calderón and Eduardo Levy Yeyati, 2007. "Zooming in: From Aggregate Volatility to Income Distribution," Business School Working Papers 2007-03, Universidad Torcuato Di Tella.
  16. Diallo, Ibrahima Amadou, 2011. "The effects of real exchange rate misalignment and real exchange volatility on exports," MPRA Paper 32387, University Library of Munich, Germany.
  17. George Tavlas & Harris Dellas & Alan Stockman, 2008. "The Classification and Perfomance of Alternative Exchange-Rate Systems," Working Papers 90, Bank of Greece.

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