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Pegging emerging currencies in the face of dollar swings

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  • Virginie Coudert
  • Cécile Couharde
  • Valérie Mignon

Abstract

The aim of this paper is to study ruptures of exchange-rate pegs by focusing on the fluctuations of the anchor currency. We test for the hypothesis that currencies linked to the USD are more likely to loosen their peg when the USD is appreciating, while sticking to it otherwise. To this end, we estimate smooth-transition regression models for a sample of 28 emerging currencies over the 1994-2011 period. Our findings show that while the real effective exchange rates of most of these countries tend to co-move with that of the USD in times of depreciation, this relationship is frequently reversed when the US currency appreciates over a certain threshold. Such nonlinear effects are especially at stake in Asia where growth is export-oriented.

Suggested Citation

  • Virginie Coudert & Cécile Couharde & Valérie Mignon, 2012. "Pegging emerging currencies in the face of dollar swings," Working Papers 2012-21, CEPII research center.
  • Handle: RePEc:cii:cepidt:2012-21
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    References listed on IDEAS

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    5. Masson, Paul R., 2001. "Exchange rate regime transitions," Journal of Development Economics, Elsevier, vol. 64(2), pages 571-586, April.
    6. Bracke, Thierry & Bunda, Irina, 2011. "Exchange rate anchoring - Is there still a de facto US dollar standard?," Working Paper Series 1353, European Central Bank.
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    10. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
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    12. Tsangarides, Charalambos G., 2012. "Crisis and recovery: Role of the exchange rate regime in emerging market economies," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 470-488.
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    Cited by:

    1. Gabriel Gomes, 2014. "Is the oil currency – oil price nexus affected by dollar swings?," EconomiX Working Papers 2014-53, University of Paris Nanterre, EconomiX.
    2. Benjamin Keddad, 2013. "Exchange rate coordination in Asia under regional currency basket systems," Economics Bulletin, AccessEcon, vol. 33(4), pages 2913-2929.
    3. Gabriel Gomes, 2016. "On the impact of dollar movements on oil currencies," EconomiX Working Papers 2016-1, University of Paris Nanterre, EconomiX.
    4. Keddad, Benjamin, 2016. "How do the Renminbi and other East Asian currencies co-move?," MPRA Paper 83782, University Library of Munich, Germany.
    5. Benjamin Keddad, 2013. "Assessing Asian Exchange Rates Coordination under Regional Currency Basket System," AMSE Working Papers 1345, Aix-Marseille School of Economics, Marseille, France, revised Sep 2013.
    6. Baaziz, Yosra & Labidi, Moez & Lahiani, Amine, 2013. "Does the South African Reserve Bank follow a nonlinear interest rate reaction function?," Economic Modelling, Elsevier, vol. 35(C), pages 272-282.

    More about this item

    Keywords

    real exchange rates; anchor currency; rupture of pegs; smooth transition regression models;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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