Exchange market pressures during the financial crisis: A Bayesian model averaging evidence
Roman Horvath and
No 11/2013, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition
In this paper, we examine whether pre-crisis leading indicators help explain pressures on the exchange rate (and its volatility) during the global financial crisis. We use a unique data set that covers 149 countries and 58 indicators, and estimation techniques that are robust to model uncertainty. Our results are threefold: First and foremost, we find that price stability plays a pivotal role as a determinant of exchange rate pressures. More specifically, the currencies of countries that experienced higher inflation prior to the crisis tend to be more affected in times of stress. Second, we investigate potential effects that vary with the level of pre-crisis inflation. In this vein, our results reveal that domestic savings reduce the severity of pressures in countries that experienced a low-inflation environment prior to the crisis. Finally, we find evidence of the mitigating effects of international reserves on the volatility of exchange rate pressures. Keywords: Exchange market pressures, financial crisis JEL Codes: F31, F37
JEL-codes: F31 F37 (search for similar items in EconPapers)
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Published in Published in Journal of International Money and Finance, Volume 40, February 2014, Pages 21–41
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Journal Article: Exchange market pressures during the financial crisis: A Bayesian model averaging evidence (2014)
Working Paper: Exchange Market Pressures during the Financial Crisis: A Bayesian Model Averaging Evidence (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bof:bofitp:2013_011
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