Exchange rate regimes and current account adjustment: an empirical investigation

Fernando Eguren-Martin ()
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Fernando Eguren-Martin: Bank of England, Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
Authors registered in the RePEc Author Service: Fernando Eguren Martin

No 544, Bank of England working papers from Bank of England

Abstract: The acceleration in the formation of global imbalances in the period preceding the last financial crisis prompted a revival of the debate on whether exchange rate regimes affect the flexibility of the current account (ie its degree of mean reversion), as originally proposed by Friedman (1953). I analyse this relation systematically using a panel of 180 countries over the 1960–2007 period. In contrast to pioneering work on the subject, I find robust evidence that flexible exchange rate arrangements do deliver a faster current account adjustment among non-industrial countries. Additionally, I try to identify channels through which this effect could be taking place. Evidence suggests that exports respond to expenditure-switching behaviour by consumers when faced with changes in international relative prices. There is mixed evidence of credit acting as an additional avenue of influence.

Keywords: External dynamics; exchange rate regimes; current account imbalances. (search for similar items in EconPapers)
JEL-codes: F31 F32 F33 F41 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2015-08-21
New Economics Papers: this item is included in nep-ifn, nep-mon and nep-opm
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Journal Article: Exchange rate regimes and current account adjustment: An empirical investigation (2016)
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