Boom and Bust Cycles in Emerging Markets: How Important is the Exchange Rate?

42 Pages Posted: 28 Jan 2018

See all articles by Pierre L. Siklos

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics; Balsillie school of international affairs

Multiple version iconThere are 2 versions of this paper

Date Written: January 19, 2018

Abstract

This paper examines the macroeconomic implications of exchange rate shocks in a sample of 13 emerging market and 6 advanced economies since the early 1990s. Factor-augmented vector autoregressions are estimated with three separate factors identified. They are: real, monetary and financial factors. The main conclusion is that there is no ‘one size fits all’ when interpreting the domestic responses to an exchange rate shock. International policies that aim to define a particular exchange rate or exchange rate regime are unlikely to be able to deal with so many idiosyncratic responses. Nor is it the case that a particular monetary policy strategy, such as inflation targeting, can immunize a domestic economy against all external shocks. International cooperation should instead encourage individual economies to seek out the menu of policies that ensure that each one’s house is in order.

Keywords: USD Exchange Rate Channel, Emerging Markets, Boom-and-Busts, Monetary Policy Strategy, Globalization

JEL Classification: F62, F42, E32, E65, E58

Suggested Citation

Siklos, Pierre L., Boom and Bust Cycles in Emerging Markets: How Important is the Exchange Rate? (January 19, 2018). Available at SSRN: https://ssrn.com/abstract=3105402 or http://dx.doi.org/10.2139/ssrn.3105402

Pierre L. Siklos (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Department of Economics
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Waterloo, Ontario N2L 3C5
Canada
519-884-0710 Ext.. 3491 (Phone)

HOME PAGE: http://pierrelsiklos.com

Balsillie school of international affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada

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