Shock Persistence and the Choice of Foreign Exchange Regime : An Empirical Note from Mexico
The academic and policy debate about optimal foreign exchange rate regimes for emerging economies, has focused more on the theoretical costs and benefits of possible regimes, than on their actual performance. The authors report on what can be called exchange-rate-regime-dependent differential shock...
| Main Authors: | , |
|---|---|
| Format: | Publications & Research |
| Language: | en_US |
| Published: |
World Bank, Washington, DC
2015
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/10986/21454 |
| id |
okr-10986-21454 |
|---|---|
| recordtype |
oai_dc |
| spelling |
okr-10986-214542021-04-23T14:04:02Z Shock Persistence and the Choice of Foreign Exchange Regime : An Empirical Note from Mexico Giugale, Marcelo Korobow, Adam borrowing costs capital account carbon carbon dioxide carbon dioxide emissions central banks country sample cpi currency currency board currency boards currency crises devaluation developing countries domestic economy domestic interest rates econometric analysis economic dynamics economic statistics economic time series economists emerging countries emerging economies emerging markets empirical research employment endogenous variables equilibrium exchange arrangements exchange rate exchange rate regime exchange rate regimes exchange systems external borrowing external shock external shocks financial crises financial integration fiscal constraints fiscal policy fixed exchange rate fixed exchange rates flexible exchange rates foreign exchange foreign exchange rate foreign exchange rates foreign shocks forestry inflation interest rates international monetary fund joint implementation labor markets long term M2 macroeconomic volatility macroeconomics market economies monetary policy monetary unions multipliers nominal exchange rate nominal exchange rates nominal interest rate nominal interest rates output recovery output volatility policy makers policy options policy research political economy post Keynesian economics private sector real interest real interest rate real output real variables risk premia social costs standard deviation statistical analysis trade policies welfare effects foreign exchange administration emerging economies economic shocks outputs exchange rate indicators economic recovery external shocks nominal protection rate fixed rate bonds developing countries currency boards equilibrium theory social assessments The academic and policy debate about optimal foreign exchange rate regimes for emerging economies, has focused more on the theoretical costs and benefits of possible regimes, than on their actual performance. The authors report on what can be called exchange-rate-regime-dependent differential shock persistence - that is, the time output takes to return to its trend after a negative shock - in a sample of countries representing various points on the spectrum of nominal foreign exchange flexibility. They find strong evidence that Mexico's stimulated output recovery after a negative external shock was faster (a third as long) when the country's policymakers let the nominal foreign exchange rate float, than when they fixed it, and much faster than in other developing countries that kept nominal foreign exchange rates constant, especially those that resorted to currency board arrangements to support that constancy. These results are insufficient to guide the choice of regime (they lack general equilibrium value, and are based on a limited sample of countries), but they highlight an important practical consideration in making that choice: How long it takes for output to adjust after negative shocks, is sensitive to the level of rigidity of the foreign exchange regime. This factor may be critical when the social costs of those adjustments are not negligible. 2015-02-13T19:34:06Z 2015-02-13T19:34:06Z 2000-06 http://hdl.handle.net/10986/21454 en_US Policy Research Working Paper;No. 2371 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Mexico |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
en_US |
| topic |
borrowing costs capital account carbon carbon dioxide carbon dioxide emissions central banks country sample cpi currency currency board currency boards currency crises devaluation developing countries domestic economy domestic interest rates econometric analysis economic dynamics economic statistics economic time series economists emerging countries emerging economies emerging markets empirical research employment endogenous variables equilibrium exchange arrangements exchange rate exchange rate regime exchange rate regimes exchange systems external borrowing external shock external shocks financial crises financial integration fiscal constraints fiscal policy fixed exchange rate fixed exchange rates flexible exchange rates foreign exchange foreign exchange rate foreign exchange rates foreign shocks forestry inflation interest rates international monetary fund joint implementation labor markets long term M2 macroeconomic volatility macroeconomics market economies monetary policy monetary unions multipliers nominal exchange rate nominal exchange rates nominal interest rate nominal interest rates output recovery output volatility policy makers policy options policy research political economy post Keynesian economics private sector real interest real interest rate real output real variables risk premia social costs standard deviation statistical analysis trade policies welfare effects foreign exchange administration emerging economies economic shocks outputs exchange rate indicators economic recovery external shocks nominal protection rate fixed rate bonds developing countries currency boards equilibrium theory social assessments |
| spellingShingle |
borrowing costs capital account carbon carbon dioxide carbon dioxide emissions central banks country sample cpi currency currency board currency boards currency crises devaluation developing countries domestic economy domestic interest rates econometric analysis economic dynamics economic statistics economic time series economists emerging countries emerging economies emerging markets empirical research employment endogenous variables equilibrium exchange arrangements exchange rate exchange rate regime exchange rate regimes exchange systems external borrowing external shock external shocks financial crises financial integration fiscal constraints fiscal policy fixed exchange rate fixed exchange rates flexible exchange rates foreign exchange foreign exchange rate foreign exchange rates foreign shocks forestry inflation interest rates international monetary fund joint implementation labor markets long term M2 macroeconomic volatility macroeconomics market economies monetary policy monetary unions multipliers nominal exchange rate nominal exchange rates nominal interest rate nominal interest rates output recovery output volatility policy makers policy options policy research political economy post Keynesian economics private sector real interest real interest rate real output real variables risk premia social costs standard deviation statistical analysis trade policies welfare effects foreign exchange administration emerging economies economic shocks outputs exchange rate indicators economic recovery external shocks nominal protection rate fixed rate bonds developing countries currency boards equilibrium theory social assessments Giugale, Marcelo Korobow, Adam Shock Persistence and the Choice of Foreign Exchange Regime : An Empirical Note from Mexico |
| geographic_facet |
Latin America & Caribbean Mexico |
| relation |
Policy Research Working Paper;No. 2371 |
| description |
The academic and policy debate about optimal foreign exchange rate regimes for emerging economies, has focused more on the theoretical costs and benefits of possible regimes, than on their actual performance. The authors report on what can be called exchange-rate-regime-dependent differential shock persistence - that is, the time output takes to return to its trend after a negative shock - in a sample of countries representing various points on the spectrum of nominal foreign exchange flexibility. They find strong evidence that Mexico's stimulated output recovery after a negative external shock was faster (a third as long) when the country's policymakers let the nominal foreign exchange rate float, than when they fixed it, and much faster than in other developing countries that kept nominal foreign exchange rates constant, especially those that resorted to currency board arrangements to support that constancy. These results are insufficient to guide the choice of regime (they lack general equilibrium value, and are based on a limited sample of countries), but they highlight an important practical consideration in making that choice: How long it takes for output to adjust after negative shocks, is sensitive to the level of rigidity of the foreign exchange regime. This factor may be critical when the social costs of those adjustments are not negligible. |
| format |
Publications & Research |
| author |
Giugale, Marcelo Korobow, Adam |
| author_facet |
Giugale, Marcelo Korobow, Adam |
| author_sort |
Giugale, Marcelo |
| title |
Shock Persistence and the Choice of Foreign Exchange Regime : An Empirical Note from Mexico |
| title_short |
Shock Persistence and the Choice of Foreign Exchange Regime : An Empirical Note from Mexico |
| title_full |
Shock Persistence and the Choice of Foreign Exchange Regime : An Empirical Note from Mexico |
| title_fullStr |
Shock Persistence and the Choice of Foreign Exchange Regime : An Empirical Note from Mexico |
| title_full_unstemmed |
Shock Persistence and the Choice of Foreign Exchange Regime : An Empirical Note from Mexico |
| title_sort |
shock persistence and the choice of foreign exchange regime : an empirical note from mexico |
| publisher |
World Bank, Washington, DC |
| publishDate |
2015 |
| url |
http://hdl.handle.net/10986/21454 |
| _version_ |
1764448309431238656 |