Exchange rate regimes and current account adjustment: An empirical investigation

Fernando Eguren Martin

Journal of International Money and Finance, 2016, vol. 65, issue C, 69-93

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 (i.e. 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. I find robust evidence that flexible exchange rate arrangements deliver a faster current account adjustment among non-industrial countries. Additionally, I try to identify channels through which this effect could be taking place. The results suggest that exports respond to expenditure-switching behaviour by consumers when faced with changes in international relative prices, configuring a potential channel.

Keywords: Exchange rate regimes; Current account imbalances; External adjustment (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (30)

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Working Paper: Exchange rate regimes and current account adjustment: an empirical investigation (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:65:y:2016:i:c:p:69-93

DOI: 10.1016/j.jimonfin.2016.03.006

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