Pick Your Poison: The Exchange Rate Regime and Capital Account Volatility in Emerging Markets
University of Kansas - Department of Economics
International Monetary Fund (IMF) - Research Department
IMF Working Paper No. 03/92
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.
Number of Pages in PDF File: 28
Keywords: exchange rate regime, capital account, structural vector autoregression
JEL Classification: F32, F32, F33working papers series
Date posted: January 29, 2006
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