Limits of floating exchange rates: The role of foreign currency debt and import structure

• 成果类型: Article
• 署名作者: Towbin, Pascal; Weber, Sebastian
• 署名单位: European Central Bank; Bank of France; International Monetary Fund
• 刊物名称: JOURNAL OF DEVELOPMENT ECONOMICS
• ISSN/ISSBN: 0304-3878
• DOI: 10.1016/j.jdeveco.2012.10.007
• 发表日期: 2013
• 页码: 179-194
• 关键词: exchange rate regimes; balance sheet effects; pass-through; Interacted panel VAR; external shocks

摘要

A traditional argument in favor of flexible exchange rates is that they insulate output better from real shocks, because the exchange rate can adjust and stabilize demand for domestic goods through expenditure switching. This argument is weakened in models with high foreign currency debt and low exchange rate pass-through to import prices. The present study evaluates the empirical relevance of these two factors. We analyze the transmission of real external shocks to the domestic economy under fixed and flexible exchange rate regimes for a broad sample of countries in a Panel VAR and let the responses vary with foreign currency debt and import structure. We find that flexible exchange rates do not insulate output better from external shocks if the country imports mainly low pass-through goods and foreign indebtedness is high. (C) 2012 Elsevier B.V. All rights reserved.