What Makes a Currency Procyclical? : An Empirical Investigation

This paper looks at the correlation between the cyclical components of gross domestic product and the exchange rate and classifies countries' currencies as procyclical if they appreciate in good times, countercyclical if they appreciate in bad times, and acyclical otherwise. With this classific...

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Main Authors:	Cordella, Tito, Gupta, Poonam
Format:	Journal Article
Language:	en_US
Published:	Elsevier 2015
Subjects:	currency cyclicality procyclical currencies countercyclical currencies exchange rates monetary policy fear of floating
Online Access:	http://hdl.handle.net/10986/22713

id	okr-10986-22713
recordtype	oai_dc
spelling	okr-10986-227132021-04-23T14:04:10Z What Makes a Currency Procyclical? : An Empirical Investigation Cordella, Tito Gupta, Poonam currency cyclicality procyclical currencies countercyclical currencies exchange rates monetary policy fear of floating This paper looks at the correlation between the cyclical components of gross domestic product and the exchange rate and classifies countries' currencies as procyclical if they appreciate in good times, countercyclical if they appreciate in bad times, and acyclical otherwise. With this classification, the paper shows that: (i) the countries that are commodity exporters and experience procyclical capital flows tend to have procyclical currencies; (ii) countries with procyclical currencies tend to restrict their capital accounts, perhaps as an attempt to reduce the degree of procyclicality; (iii) countries with procyclical currencies pursue procyclical monetary policy; (iv) however, in the last decade, there is a disconnect between the cyclicality of currency and monetary policy; and (v) the disconnect may reflect a decline in the fear of floating, which can be partially attributed to an improvement in countries' net foreign asset positions. 2015-09-30T21:33:57Z 2015-09-30T21:33:57Z 2015-03-11 Journal Article Journal of International Money and Finance 0261-5606 http://hdl.handle.net/10986/22713 en_US CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ World Bank Elsevier Publications & Research Publications & Research :: Journal Article
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	currency cyclicality procyclical currencies countercyclical currencies exchange rates monetary policy fear of floating
spellingShingle	currency cyclicality procyclical currencies countercyclical currencies exchange rates monetary policy fear of floating Cordella, Tito Gupta, Poonam What Makes a Currency Procyclical? : An Empirical Investigation
description	This paper looks at the correlation between the cyclical components of gross domestic product and the exchange rate and classifies countries' currencies as procyclical if they appreciate in good times, countercyclical if they appreciate in bad times, and acyclical otherwise. With this classification, the paper shows that: (i) the countries that are commodity exporters and experience procyclical capital flows tend to have procyclical currencies; (ii) countries with procyclical currencies tend to restrict their capital accounts, perhaps as an attempt to reduce the degree of procyclicality; (iii) countries with procyclical currencies pursue procyclical monetary policy; (iv) however, in the last decade, there is a disconnect between the cyclicality of currency and monetary policy; and (v) the disconnect may reflect a decline in the fear of floating, which can be partially attributed to an improvement in countries' net foreign asset positions.
format	Journal Article
author	Cordella, Tito Gupta, Poonam
author_facet	Cordella, Tito Gupta, Poonam
author_sort	Cordella, Tito
title	What Makes a Currency Procyclical? : An Empirical Investigation
title_short	What Makes a Currency Procyclical? : An Empirical Investigation
title_full	What Makes a Currency Procyclical? : An Empirical Investigation
title_fullStr	What Makes a Currency Procyclical? : An Empirical Investigation
title_full_unstemmed	What Makes a Currency Procyclical? : An Empirical Investigation
title_sort	what makes a currency procyclical? : an empirical investigation
publisher	Elsevier
publishDate	2015
url	http://hdl.handle.net/10986/22713
_version_	1764451912767242240

What Makes a Currency Procyclical? : An Empirical Investigation

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