Economic Integration and the Exchange Rate Regime: How Damaging are Currency Crises?

74 Pages Posted: 8 Mar 2004

See all articles by Günter W. Beck

Günter W. Beck

University of Siegen

Axel A. Weber

University of Cologne - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2003

Abstract

We use consumer price data for 205 cities/regions in 21 ountries to study deviations from the law-of-one-price before, during and after the major currency crises of the 1990s. We combine data from industrialised nations in North America (Unites States, Canada, Mexico), Europe (Germany, Italy, Spain and Portugal) and Asia (Japan, Korea, New Zealand, Australia) with corresponding data from emerging market economies in the South America (Argentine, Bolivia, Brazil, Columbia) and Asia (India, Indonesia, Malaysia, Philippines, Taiwan, Thailand). We confirm previous results that both distance and border explain a significant amount of relative price variation across different locations. We also find that currency attacks had major disintegration effects by significantly increasing these border effects, and by raising within country relative price dispersion in emerging market economies. These effects are found to be quite persistent since relative price volatility across emerging markets today is still significantly larger than a decade ago.

Keywords: relative price volatility, spatial data, real exchange rate, law of one price, purchasing power parity, currency crisis, contagion, economic integration

JEL Classification: F40, F41

Suggested Citation

Beck, Günter W. and Weber, Axel A., Economic Integration and the Exchange Rate Regime: How Damaging are Currency Crises? (October 2003). Available at SSRN: https://ssrn.com/abstract=380282 or http://dx.doi.org/10.2139/ssrn.380282

Günter W. Beck (Contact Author)

University of Siegen ( email )

Unteres Schloss 3
Siegen, NRW 57072
Germany

Axel A. Weber

University of Cologne - Department of Economics ( email )

Cologne, 50923
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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