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From the Great Moderation to the Global Crisis: Exchange Market Pressure in the 2000s

Author

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  • Joshua Aizenman

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  • Jaewoo Lee

    ()

  • Vladyslav Sushko

    ()

Abstract

We study exchange market pressures (EMP) and using international reserves by emerging markets (EMs) during the 2000s. We find that financial considerations dominated trade factors. The impact of gross short-term external debt quintuples during the crisis. Capital outflows and deleveraging was the force behind EMP rise during the global financial crisis. Greater FDI (greater portfolio debt) inflows prior to the crisis were associated with a lower (higher) crisis EMP, respectively. The severity of the financial shock was exacerbated by financial ties to the U.S., while the trade shock was more severe in EMs with a larger commodity export share. Copyright Springer Science+Business Media, LLC 2012

Suggested Citation

  • Joshua Aizenman & Jaewoo Lee & Vladyslav Sushko, 2012. "From the Great Moderation to the Global Crisis: Exchange Market Pressure in the 2000s," Open Economies Review, Springer, vol. 23(4), pages 597-621, September.
  • Handle: RePEc:kap:openec:v:23:y:2012:i:4:p:597-621
    DOI: 10.1007/s11079-011-9228-y
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    References listed on IDEAS

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    1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
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    Citations

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    Cited by:

    1. Andrew J. Filardo & Pierre L. Siklos, 2016. "Prolonged Reserves Accumulation, Credit Booms, Asset Prices and Monetary Policy in Asia," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(2), pages 364-381, February.
    2. Sengupta, Rajeswari & Sen Gupta, Abhijit, 2013. "Policy Tradeoffs in an Open Economy and the Role of G-20 in Global Macroeconomic Policy Coordination," MPRA Paper 53948, University Library of Munich, Germany, revised 12 Jul 2013.
    3. Hossfeld, Oliver & Pramor, Marcus, 2018. "Global liquidity and exchange market pressure in emerging market economies," Discussion Papers 05/2018, Deutsche Bundesbank.
    4. repec:onb:oenbfi:y:2012:i:2:b:3 is not listed on IDEAS
    5. Sen Gupta, Abhijit & Sengupta, Rajeswari, 2013. "Management of Capital Flows in India: 1990-2011," MPRA Paper 46217, University Library of Munich, Germany.
    6. Aizenman, Joshua & Binici, Mahir, 2016. "Exchange market pressure in OECD and emerging economies: Domestic vs. external factors and capital flows in the old and new normal," Journal of International Money and Finance, Elsevier, vol. 66(C), pages 65-87.
    7. Feldkircher, Martin & Horvath, Roman & Rusnak, Marek, 2014. "Exchange market pressures during the financial crisis: A Bayesian model averaging evidence," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 21-41.
    8. Sen Gupta, Abhijit & Sengupta, Rajeswari, 2014. "Capital Flows and Capital Account Management in Selected Asian Economies," MPRA Paper 58982, University Library of Munich, Germany.
    9. Feldkircher, Martin, 2014. "The determinants of vulnerability to the global financial crisis 2008 to 2009: Credit growth and other sources of risk," Journal of International Money and Finance, Elsevier, vol. 43(C), pages 19-49.
    10. Jesús Crespo Cuaresma & Martin Feldkircher, 2012. "Drivers of Output Loss during the 2008–09 Crisis: A Focus on Emerging Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 46-64.
    11. Robert Dixon & Zhichao Zhang & Yang Dai, 2016. "Exchange Rate Flexibility in China: Measurement, Regime Shifts and Driving Forces of Change," Review of International Economics, Wiley Blackwell, vol. 24(5), pages 875-892, November.
    12. Siklos, Pierre L., 2011. "Emerging market yield spreads: Domestic, external determinants, and volatility spillovers," Global Finance Journal, Elsevier, vol. 22(2), pages 83-100.
    13. Heinz, Frigyes Ferdinand & Rusinova, Desislava, 2015. "An alternative view of exchange market pressure episodes in emerging Europe: an analysis using Extreme Value Theory (EVT)," Working Paper Series 1818, European Central Bank.

    More about this item

    Keywords

    Exchange market pressure; Financial and trade factors; International reserves; Global crisis; F15; F21; F31; F32;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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