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Is Exchange Rate Stabilization an Appropriate Cure for the Dutch Disease?


  • Chris Kubelec

    (Royal Bank of Scotland)

  • Filipa Sá

    (The Geographical Composition of National External Balance Sheets: 1980-2005)


This paper constructs a data set on the stocks of bilateral external assets and liabilities for eighteen countries in the period from 1980 to 2005. It distinguishes between four asset classes: foreign direct investment, portfolio equity, debt, and foreign exchange reserves. Network methods are used to explore the key facts that emerge from the data. We find that there has been a remarkable increase in interconnectivity over the past two decades and that this has been centered around a small number of countries. In a simulation exercise we show that shocks to one of the central countries generate much larger losses to the network than shocks to the periphery.

Suggested Citation

  • Chris Kubelec & Filipa Sá, 2012. "Is Exchange Rate Stabilization an Appropriate Cure for the Dutch Disease?," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 143-189, June.
  • Handle: RePEc:ijc:ijcjou:y:2012:q:2:a:5

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    References listed on IDEAS

    1. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
    2. Martin, Philippe & Rey, Helene, 2004. "Financial super-markets: size matters for asset trade," Journal of International Economics, Elsevier, vol. 64(2), pages 335-361, December.
    3. Philip R. Lane & Jay C. Shambaugh, 2010. "Financial Exchange Rates and International Currency Exposures," American Economic Review, American Economic Association, vol. 100(1), pages 518-540, March.
    4. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2001. "The external wealth of nations: measures of foreign assets and liabilities for industrial and developing countries," Journal of International Economics, Elsevier, vol. 55(2), pages 263-294, December.
    5. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, vol. 87(2), pages 205-215.
    6. Kaminsky, Graciela Laura & Schmukler, Sergio L., 2002. "Short-run pain, long-run gain : the effects of financial liberalization," Policy Research Working Paper Series 2912, The World Bank.
    7. Barry J. Eichengreen & Donald J Mathieson, 2000. "The Currency Composition of Foreign Exchange Reserves; Retrospect and Prospect," IMF Working Papers 00/131, International Monetary Fund.
    8. Goetz von Peter, 2007. "International banking centres: a network perspective," BIS Quarterly Review, Bank for International Settlements, December.
    9. Stein, Ernesto & Daude, Christian, 2007. "Longitude matters: Time zones and the location of foreign direct investment," Journal of International Economics, Elsevier, vol. 71(1), pages 96-112, March.
    10. Alberto Felettigh & Paola Monti, 2008. "How to interpret the CPIS data on the distribution of foreign portfolio assets in the presence of sizeable cross-border positions in mutual funds. Evidence for Italy and the main euro-area countries," Questioni di Economia e Finanza (Occasional Papers) 16, Bank of Italy, Economic Research and International Relations Area.
    11. Montek S. Ahluwalia, 2002. "Economic Reforms in India Since 1991: Has Gradualism Worked?," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 67-88, Summer.
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    JEL classification:

    • F3 - International Economics - - International Finance


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