{
  "title": "No Pain, All Gain? Exchange Rate Flexibility and the Expenditure-Switching Effect",
  "publication": "IMF Working Papers, September 28, 2018",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2018/09/28/no-pain-all-gain-exchange-rate-flexibility-and-the-expenditure-switching-effect-46270",
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  "summary": "Theoretical models on the relationship between prices and exchange rates predict that the magnitude of expenditure switching affects the optimal choice of exchange rate regime.",
  "sections": [
    {
      "heading": "Theoretical framing",
      "content": "- Theoretical models on the relationship between prices and exchange rates predict that the magnitude of expenditure switching affects the optimal choice of exchange rate regime.\n- Focus: transmission of terms-of-trade shocks to domestic real variables."
    },
    {
      "heading": "Empirical findings",
      "content": "- The magnitude of the expenditure switching effect is positively associated to the degree of exchange rate flexibility.\n- Flexible exchange rates allow for significant adjustment in relative prices.\n- Adjustment in relative prices lowers the burden of adjustment on demand for domestic goods.\n- In some cases, flexible exchange rates facilitate a faster and more durable external adjustment process."
    },
    {
      "heading": "Robustness and nonlinearities",
      "content": "- Results are robust to accounting for possible non-linearities due to balance sheet effects or currency mismatches."
    },
    {
      "heading": "Key statistics and publication facts",
      "content": "- Pages: 30\n- Volume: 2018\n- Issue: 213\n- Series: Working Paper No. 2018/213\n- DOI: https://doi.org/10.5089/9781484378236.001"
    },
    {
      "heading": "Policy implications and interpretation",
      "content": "- Greater exchange rate flexibility can enhance shock absorption by enabling relative price adjustment.\n- When expenditure switching is stronger under flexible regimes, the demand-side burden of external shocks on domestic goods can be reduced, potentially accelerating external adjustment.\n\nBy Yan Carriere-Swallow, Nicolas E Magud, and Juan Yepez; IMF Working Paper No. 2018/213 (September 28, 2018).\n\n---\n\n Content in this bundle\n\n- wp18213 - Section III–VI\n  - wp18213 - Section III–VI (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp18213 - Section III–VI (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2018/09/28/no-pain-all-gain-exchange-rate-flexibility-and-the-expenditure-switching-effect-46270"
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    "Authors: Yan Carriere-Swallow, Nicolas E Magud, Juan Yepez",
    "Published: September 28, 2018",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484378236.001",
    "Theoretical models on the relationship between prices and exchange rates predict that the magnitude of expenditure switching affects the optimal choice of exchange rate regime.",
    "Focus: transmission of terms-of-trade shocks to domestic real variables.",
    "The magnitude of the expenditure switching effect is positively associated to the degree of exchange rate flexibility.",
    "Flexible exchange rates allow for significant adjustment in relative prices.",
    "Adjustment in relative prices lowers the burden of adjustment on demand for domestic goods.",
    "In some cases, flexible exchange rates facilitate a faster and more durable external adjustment process.",
    "Results are robust to accounting for possible non-linearities due to balance sheet effects or currency mismatches.",
    "Pages: 30",
    "Volume: 2018",
    "Issue: 213",
    "Series: Working Paper No. 2018/213",
    "DOI: https://doi.org/10.5089/9781484378236.001",
    "Greater exchange rate flexibility can enhance shock absorption by enabling relative price adjustment.",
    "When expenditure switching is stronger under flexible regimes, the demand-side burden of external shocks on domestic goods can be reduced, potentially accelerating external adjustment.",
    "**wp18213 - Section III–VI**"
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