Do We Really Know that Flexible Exchange Rates Facilitate Current Account Adjustment?

Herrmann, Sabine

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Do We Really Know that Flexible Exchange Rates Facilitate Current Account Adjustment?

Applied Economics Quarterly, Forthcoming

Deutsche Bundesbank Discussion Paper Series 1: Economic Studies No. 22/2009

44 Pages Posted: 24 Jul 2010

See all articles by Sabine Herrmann

Sabine Herrmann

Deutsche Bundesbank - Economic Research Centre

Date Written: 2009

Abstract

This paper examines the relationship between the exchange rate regime and the pace of current account adjustment. The panel data set we refer to includes 11 catching-up countries from central, eastern and south-eastern Europe between 1994 and 2007. The exchange rate regime is measured by a continuous z-score measure of exchange rate volatility proposed by Gosh, Gulde and Wolf (2003). Based on a basic autoregression estimation, the results indicate that a more flexible exchange rate regime significantly enhances the rate of current account adjustment.

Keywords: Current Account Adjustment, Exchange Rate Regime, Central and Eastern Europe

JEL Classification: F32, F31, O52

Suggested Citation: Suggested Citation

Herrmann, Sabine, Do We Really Know that Flexible Exchange Rates Facilitate Current Account Adjustment? (2009). Applied Economics Quarterly, Forthcoming, Deutsche Bundesbank Discussion Paper Series 1: Economic Studies No. 22/2009, Available at SSRN: https://ssrn.com/abstract=1647654