Pick Your Poison: The Exchange Rate Regime and Capital Account Volatility in Emerging Markets

Author/Editor:

Shigeru Iwata ; Evan C Tanner

Publication Date:

May 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We characterize a country's exchange rate regime by how its central bank channels a capital account shock across three variables: exchange depreciation, interest rates, and international reserve flows. Structural vector autoregression estimates for Brazil, Mexico, and Turkey reveal such responses, both contemporaneously and over time. Capital account shocks are further shown to affect output growth and inflation. The nature and magnitude of these effects may depend on the exchange rate regime.

Series:

Working Paper No. 2003/092

Subject:

Balance of payments Capital account Exchange rate arrangements Exchange rate flexibility Exchange rates Foreign exchange Inflation Prices

English

Publication Date:

May 1, 2003

ISBN/ISSN:

9781451851618/1018-5941

Stock No:

WPIEA0922003

Pages:

28

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