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Is the exchange rate regime really irrelevant for external adjustment?

Author

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  • Ghosh, Atish R.
  • Qureshi, Mahvash S.
  • Tsangarides, Charalambos G.

Abstract

We argue that evidence on whether floating exchange rates facilitate external adjustment is contradictory because existing regime classifications do not adequately capture exchange rate flexibility relevant to external adjustment. Using a trade-weighted bilateral exchange rate volatility measure, we show that exchange rate flexibility indeed matters for current account dynamics.

Suggested Citation

  • Ghosh, Atish R. & Qureshi, Mahvash S. & Tsangarides, Charalambos G., 2013. "Is the exchange rate regime really irrelevant for external adjustment?," Economics Letters, Elsevier, vol. 118(1), pages 104-109.
    • Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:104-109
    DOI: 10.1016/j.econlet.2012.09.010
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 1-48.
    2. Eduardo Levy-Yeyati & Federico Sturzenegger, 2003. "To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth," American Economic Review, American Economic Association, vol. 93(4), pages 1173-1193, September.
    3. Menzie D. Chinn & Shang-Jin Wei, 2008. "A Faith-based Initiative: Does a Flexible Exchange Rate Regime Really Facilitate Current Account Adjustment?," NBER Working Papers 14420, National Bureau of Economic Research, Inc.
    4. Sabine Herrmann, 2009. "Do We Really Know That Flexible Exchange Rates Facilitate Current Account Adjustment? Some New Empirical Evidence for CEE Countries," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 55(4), pages 295-312.
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    Keywords

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    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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