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Macroeconomic Policy Making, Exchange Rate Adjustment and Current Account Imbalances in Emerging Markets

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  • Pablo Duarte
  • Gunther Schnabl

Abstract

Given a series of crisis events after 2007 the discussion about the adjustment channels of current account imbalances has been revived. We examine the role of exchange rates vs macroeconomic policies as determinants of current accounts for a set of 86 mainly emerging market economies between 1990 and 2013 to identify adjustment channels for global imbalances. We find that nominal exchange rates are not the main determinant of current account positions. Instead, depending on the region, monetary and/or fiscal policies are identified as the main driving force of current accounts. For East Asia and the oil exporting countries sterilization policies, i.e. relatively tight monetary policies, are the main determinants. In contrast for many European periphery countries fiscal policy stances are at the core of current account positions. Only for the Latin American countries does the exchange rate play a significant role as determinant of current account positions.

Suggested Citation

  • Pablo Duarte & Gunther Schnabl, 2015. "Macroeconomic Policy Making, Exchange Rate Adjustment and Current Account Imbalances in Emerging Markets," Review of Development Economics, Wiley Blackwell, vol. 19(3), pages 531-544, August.
  • Handle: RePEc:bla:rdevec:v:19:y:2015:i:3:p:531-544
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    File URL: http://hdl.handle.net/10.1111/rode.12168
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    Cited by:

    1. Gunther Schnabl, 2017. "The Failure of ECB Monetary Policy from a Mises-Hayek Perspective," CESifo Working Paper Series 6388, CESifo Group Munich.
    2. repec:seb:journl:v:15:y:2017:i:2:p:147-174 is not listed on IDEAS
    3. repec:rfe:zbefri:v:35:y:2017:i:2:p:391-424 is not listed on IDEAS

    More about this item

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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