Does the Exchange Rate Regime Matter for Real Shocks? Evidence from Windstorms and Earthquakes
34 Pages Posted: 29 Jan 2009 Last revised: 14 Dec 2013
Date Written: January 27, 2009
Does the choice of exchange rate regime affect an economy's adjustment to real shocks? Exploiting the unpredictability and economic exogeniety of windstorms-hurricanes and typhoons-and earthquakes this paper assess the often contrasting answers found in the theoretical literature. There is robust evidence that exchange rate flexibility helps an economy better adjust to real shocks. And consistent with the channels emphasized in the classic literature on exchange rates and shocks, differences in the behavior of the export sector help explain the different reactions between the two regimes.
Keywords: Exchange Rates, Economic Adjustment, Shocks
JEL Classification: F31, F4
Suggested Citation: Suggested Citation