Persistence of Output Fluctuations Under Alternative Exchange Rate Regimes

HKIMR Working Paper No. 07/2001

27 Pages Posted: 27 Aug 2007

See all articles by Mark Crosby

Mark Crosby

University of Melbourne - Melbourne Business School

Glenn Otto

UNSW Australia Business School, School of Economics

Date Written: August 2001

Abstract

In a recent paper Giugale and Korobow (2000) present evidence to suggest the time that output takes to return to its trend following a negative shock is faster under a flexible exchange rate regime than under a fixed exchange rate. In this paper VAR models are used to provide empirical evidence on the speed of recovery of real output following an interest rate shock for a number of Asian economies. We find little evidence that the degree of persistence in output is systematically related to the type of exchange rate regime that particular countries have adopted. Across a number of specifications we find that real output for Hong Kong and Australia has the least persistence following a negative interest rate shock. These countries represent the two ends of the spectrum, the former has an exchange rate that is pegged to the U.S. dollar via a currency board and the latter has one of the more flexible exchange rates in the Asian region.

Suggested Citation

Crosby, Mark and Otto, Glenn, Persistence of Output Fluctuations Under Alternative Exchange Rate Regimes (August 2001). HKIMR Working Paper No. 07/2001. Available at SSRN: https://ssrn.com/abstract=1009433 or http://dx.doi.org/10.2139/ssrn.1009433

Mark Crosby (Contact Author)

University of Melbourne - Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

Glenn Otto

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

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