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The Shock Absorber Role Of Exchange Rate: An Application On Selected Developing Countries

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  • Sinem SEFÝL

    (Istanbul Ticaret Universitesi)

Abstract

The frequency and sphere of influence of the economic shocks began to extend with the acceleration of the global economic integration. The exchange rate is regarded as an important policy instrument in terms of the destroying of the harmful effects of these shocks on economy. The aim of this study is to investigate the shock absorber role of the exchange rate in selected open developing economies: Turkey, Brazil, Mexico, In this context, the structural VAR framework with long run and short run restrictions is employed. The exchange rate can behave as an shock absorber only if shocks have asymmetric property. Our study finds that, real shocks in Turkey and Brazil relative to the trading partner have been asymmetric during the both the pre-and post-crisis periods. In Mexico, the exchange rate is a potential shock absorber for only supply shocks in post-crisis period. In this framework, it is found that exchange rate has an efficient shock absorbing role for mentioned countries. Also, it does not breed its own shocks.

Suggested Citation

  • Sinem SEFÝL, 2012. "The Shock Absorber Role Of Exchange Rate: An Application On Selected Developing Countries," Istanbul Commerce University Journal of Social Sciences, Istanbul Commerce University, vol. 21(1), pages 305-328.
  • Handle: RePEc:icu:journl:v:21:y:2012:i:1:p:305-328
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    File URL: http://www.ticaret.edu.tr/RePEc/icu/journl/s21/305_328.pdf
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    1. Kate Antonovics & Robert Town, 2004. "Are All the Good Men Married? Uncovering the Sources of the Marital Wage Premium," American Economic Review, American Economic Association, vol. 94(2), pages 317-321, May.
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