Current Account Adjustment in Developing Countries: The Role of Exchange Rate Regimes

16 Pages Posted: 27 Feb 2013

See all articles by Xiaoyi Mu

Xiaoyi Mu

Center for Energy, Petroleum and Mineral Law and Policy, University of Dundee

Haichun Ye

Chinese University of Hong Kong, Shenzhen

Date Written: April 2013

Abstract

This article employs hazard models to investigate the role of exchange rate regimes in the timing of current account adjustment in developing countries. We identify high current account deficit spells and find that fixed exchange rate regimes increase the duration of high deficit spells and thus delay current account adjustment. The result is robust to a variety of model specifications and alternative classifications of exchange rate regimes. When distinguishing between hard pegs and soft pegs, we notice that the delay in the current account adjustment is primarily driven by hard pegs rather than soft pegs.

JEL Classification: F3, F4

Suggested Citation

Mu, Xiaoyi and Ye, Haichun, Current Account Adjustment in Developing Countries: The Role of Exchange Rate Regimes (April 2013). Economic Inquiry, Vol. 51, Issue 2, pp. 1566-1581, 2013, Available at SSRN: https://ssrn.com/abstract=2225702 or http://dx.doi.org/10.1111/j.1465-7295.2012.00502.x

Xiaoyi Mu (Contact Author)

Center for Energy, Petroleum and Mineral Law and Policy, University of Dundee ( email )

University of Dundee
Dundee, Scotland DD1 4HN
United Kingdom

Haichun Ye

Chinese University of Hong Kong, Shenzhen ( email )

2001 Longxiang Boulevard, Longgang District
Shenzhen, 518172

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