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Macroeconomic Policy Making, Exchange Rate Adjustment and Current Account Imbalances in Emerging Markets

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  • Pablo Duarte
  • Gunther Schnabl

Abstract

Since a series of crisis events after 2007, the discussion about the adjustment channels of current account imbalances has been revived. We discuss the effectiveness of exchange rates versus macroeconomic policies to rebalance current accounts for a set of 86 mainly emerging market economies. We find that nominal exchange rates are not a sufficient adjustment channel for (unsustainable) current account positions. Instead, depending on the region, monetary and/or fiscal policies are the main determinants of current accounts. For East Asia and the oil exporting countries sterilization policies, i.e. relatively tight monetary policies, are the main determinants. In contrast the main driving forces for emerging and southern Europe are fiscal policy stances. Only for the Latin American countries the exchange rate seems to play a significant role.

Suggested Citation

  • Pablo Duarte & Gunther Schnabl, 2014. "Macroeconomic Policy Making, Exchange Rate Adjustment and Current Account Imbalances in Emerging Markets," CESifo Working Paper Series 5064, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5064
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    References listed on IDEAS

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    Cited by:

    1. Gunther Schnabl, 2017. "The Failure of ECB Monetary Policy from a Mises-Hayek Perspective," CESifo Working Paper Series 6388, CESifo Group Munich.
    2. repec:rfe:zbefri:v:35:y:2017:i:2:p:391-424 is not listed on IDEAS
    3. repec:seb:journl:v:15:y:2017:i:2:p:147-174 is not listed on IDEAS

    More about this item

    Keywords

    global imbalances; intra-european imbalances; exchange rate adjustment; monetary policy; fiscal policy;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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