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

  • Shigeru Iwata

    ()

    (Department of Economics University of Kansas)

  • Evan Tanner

    ()

    (International Monetary Fund / IMF Institute)

The authors 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.

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Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 57 (2007)
Issue (Month): 7-8 (September)
Pages: 363-381

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Handle: RePEc:fau:fauart:v:57:y:2007:i:7-8:p:363-381
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  1. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
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  7. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  8. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers 5681, National Bureau of Economic Research, Inc.
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  10. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "Af1uencia de capital y apreciacion del tipo de cambio real en America Latina: E1 papel de los factores externos
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  11. Kim, Soyoung, 2003. "Monetary policy, foreign exchange intervention, and the exchange rate in a unifying framework," Journal of International Economics, Elsevier, vol. 60(2), pages 355-386, August.
  12. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," FRB Atlanta Working Paper 95-7, Federal Reserve Bank of Atlanta.
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  14. Leonardo Leiderman & Carmen Reinhart & Guillermo Calvo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America; The Role of External Factors," IMF Working Papers 92/62, International Monetary Fund.
  15. Kenneth Kletzer & Mark Spiegel, 1996. "Speculative capital inflows and exchange rate targeting in the Pacific Basin," Pacific Basin Working Paper Series 96-05, Federal Reserve Bank of San Francisco.
  16. By May Khamis & Alfredo M. Leone, 2001. "Can Currency Demand Be Stable Under a Financial Crisis? The Case of Mexico," IMF Staff Papers, Palgrave Macmillan, vol. 48(2), pages 6.
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