Exchange Rate Flexibility across Financial Crises
Virginie Coudert (),
Cécile Couharde and
Valérie Mignon ()
CEPN Working Papers from HAL
This paper studies the impact of global financial turmoil on the exchange rate policies in emerging countries. Many emerging countries have loosened the link of their currencies to the US dollar since the bursting of the subprime crisis in July 2007. Spillovers from advanced financial markets to currencies in emerging countries stem from the same causes documented in the literature on contagion, such as the drying-up of investors' liquidity, the rise in risk aversion, and the updating of their risk assessments. Consequently, interdependencies across currencies are likely to be exacerbated during crisis periods. To test this hypothesis, we assess the exchange rate policies by their degree of flexibility, itself proxied by the exchange rate volatility, and investigate their relationship to a global financial stress indicator, measured by the volatility on global markets. We introduce the possibility of non-linearities by running smooth transition regressions (STR) over a sample of 21 emerging countries from January 1994 to September 2009. The results confirm that exchange rate flexibility does increase more than proportionally with the global financial stress, for most countries in the sample. We also evidence regional contagion effects spreading from one emerging currency to other currencies in the neighboring area.
Keywords: financial crises; dollar pegs; contagion effects; nonlinearity; crises financières; ancrage au dollar; effets de contagion; non-linéarité (search for similar items in EconPapers)
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00845254
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
Working Paper: Exchange Rate Flexibility Across Financial Crises (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hal:cepnwp:hal-00845254
Access Statistics for this paper
More papers in CEPN Working Papers from HAL
Bibliographic data for series maintained by CCSD ().