Economics at your fingertips  

Do flexible exchange rates facilitate external adjustment? A dynamic approach with time-varying and asymmetric volatility

Olivier Habimana

International Economics and Economic Policy, 2017, vol. 14, issue 4, No 5, 625-642

Abstract: Abstract This paper revisits the claim that flexible exchange rates facilitate external adjustment. While previous studies have used exchange rate regime as a proxy for exchange rate flexibility, in this study there is evidence of ARCH effects in exchange rate, and thus GARCH models are employed to estimate volatility. A dynamic panel data model is then specified, and the Arellano-Bond estimator and the Blundell-Bond estimator are employed to estimate the effect of exchange rate flexibility on the speed of adjustment of current account in a panel of 28 emerging and developing economies. There is robust evidence that flexible exchange rates indeed facilitate smoother adjustment of current account imbalances.

Keywords: Arellano-Bond estimator; Current account adjustment; Exchange rate volatility; Flexible exchange rates; GARCH; Leverage effect (search for similar items in EconPapers)
JEL-codes: C33 F31 F32 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10368/PS2

DOI: 10.1007/s10368-016-0341-7

Access Statistics for this article

International Economics and Economic Policy is currently edited by Paul J.J. Welfens, Holger C. Wolf, Christian Pierdzioch and Christian Richter

More articles in International Economics and Economic Policy from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2021-04-20
Handle: RePEc:kap:iecepo:v:14:y:2017:i:4:d:10.1007_s10368-016-0341-7