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

May 1, 2003

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.

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

Keywords: band era, capital account, capital market shock, country's exchange rate regime, exchange rate, Exchange rate arrangements, exchange rate crisis, Exchange rate flexibility, exchange rate movement, exchange rate pass-through channel, exchange rate pass-through effect, exchange rate regime, exchange rate regime assumption, exchange rate shock, Exchange rates, Global, Inflation, interest rate change, interest rate hike, Reponses eN, structural vector autoregression, WP

Pages:
28
Volume:
2003
DOI:
https://doi.org/10.5089/9781451851618.001
Issue:
092
Series:
Working Paper No. 2003/092
Stock No:
WPIEA0922003
ISBN:
9781451851618
ISSN:
1018-5941

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