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Crisis and recovery: Role of the exchange rate regime in emerging market economies

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  • Tsangarides, Charalambos G.

Abstract

Following the recent global financial crisis, questions about the mechanisms that can help countries cope with large shocks have resurfaced. This paper examines the role of the exchange rate regime in explaining how emerging market economies fared in the recent global financial crisis, particularly in terms of output losses and output rebound. After controlling for regime switches during the crisis, using alternative definitions for pegs, and taking account of other likely determinants, we find that the growth performance for pegs was not different from that of floats during the crisis. The picture is different for the recovery period 2010–2011, as pegs appear to be faring worse, with growth recovering more slowly than floats. These results suggest an asymmetric effect of the regime during and recovering from the crisis. We also find that proxies of the trade and financial channels are important determinants of growth performance during the crisis, while only the trade channel appears important for the recovery thus far.

Suggested Citation

  • Tsangarides, Charalambos G., 2012. "Crisis and recovery: Role of the exchange rate regime in emerging market economies," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 470-488.
  • Handle: RePEc:eee:jmacro:v:34:y:2012:i:2:p:470-488
    DOI: 10.1016/j.jmacro.2012.01.005
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    References listed on IDEAS

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    Cited by:

    1. D’Adamo, Gaetano & Rovelli, Riccardo, 2015. "The role of the exchange rate regime in the process of real and nominal convergence," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 21-37.
    2. Abdul Rashid, 2013. "Financial crisis and exchange rates in emerging economies: An empirical analysis using PPP-UIP-Framework," Business and Economic Horizons (BEH), Prague Development Center, vol. 9(4), pages 86-96, December.
    3. Ghada Fayad & Roberto Perrelli, 2014. "Growth Surprises and Synchronized Slowdowns in Emerging Markets––An Empirical Investigation," IMF Working Papers 14/173, International Monetary Fund.
    4. Josifidis, Kosta & Allegret, Jean-Pierre & Gimet, Céline & Pucar, Emilija Beker, 2014. "Macroeconomic policy responses to financial crises in emerging European economies," Economic Modelling, Elsevier, vol. 36(C), pages 577-591.
    5. Roberto Alvarez & Jose De Gregorio, 2014. "Understanding Differences in Growth Performance in Latin America and Developing Countries between the Asian and Global Financial Crises," Working Paper Series WP14-11, Peterson Institute for International Economics.
    6. repec:clr:wugarc:y:2013:v:39i:1p:69 is not listed on IDEAS
    7. Alfred Sitz & Aneliya Adzhemova & Atanas Pekanov, 2013. "Bulgarien: wirtschaftspolitische Strategie und ökonomische Entwicklung seit der Öffnung," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 39(1), pages 69-85.
    8. Hasan Comert & Mehmet Selman Colak, 2014. "Can Financial Stability be Maintained in Developing Countries after the Global Crisis: The Role of External Financial Shocks?," ERC Working Papers 1411, ERC - Economic Research Center, Middle East Technical University, revised Jan 2015.
    9. Jean-Sébastien Pentecôte & Fabien Rondeau, 2015. "Trade spillovers on output growth during the 2008 financial crisis," International Economics, CEPII research center, issue 143, pages 36-47.
    10. Dąbrowski, Marek A. & Śmiech, Sławomir & Papież, Monika, 2015. "Monetary policy options for mitigating the impact of the global financial crisis on emerging market economies," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 409-431.
    11. repec:rjr:romjef:v::y:2017:i:1:p:38-59 is not listed on IDEAS
    12. Antoniades, Andreas, 2015. "The New Resilience of Emerging and Developing Countries: Systemic Interlocking, Currency Swaps and Geoeconomics," MPRA Paper 68181, University Library of Munich, Germany.
    13. Dąbrowski, Marek A. & Wróblewska, Justyna, 2015. "Exchange rate as a shock absorber or a shock propagator in Poland and Slovakia - an approach based on Bayesian SVAR models with common serial correlation," MPRA Paper 61441, University Library of Munich, Germany.
    14. Aleksandra Iwulska & Naotaka Sugawara & Juan Zalduendo, 2012. "Financial Integration in Emerging Europe: an Enviable Development Opportunity with Tail Risks," CASE Network Studies and Analyses 438, CASE-Center for Social and Economic Research.
    15. repec:bla:glopol:v:8:y:2017:i:2:p:170-180 is not listed on IDEAS
    16. Dąbrowski, Marek A. & Wróblewska, Justyna, 2016. "Exchange rate as a shock absorber in Poland and Slovakia: Evidence from Bayesian SVAR models with common serial correlation," Economic Modelling, Elsevier, vol. 58(C), pages 249-262.

    More about this item

    Keywords

    Global financial crisis; Fixed exchange rate; Growth; Emerging market economies;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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