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Boom-and-Bust Cycles in Emerging Markets: How Important is the Exchange Rate?

Pierre Siklos ()

LCERPA Working Papers from Laurier Centre for Economic Research and Policy Analysis

Abstract: This paper examines the macroeconomic implications of exchange rate shocks in a sample of 13 emerging market and 6 advanced economies since the early 1990s. Factor-augmented vector autoregressions are estimated with three separate factors identified. They are: real, monetary and financial factors. The main conclusion is that there is no ‘one size fits all’ when interpreting the domestic responses to an exchange rate shock. International policies that aim to define a particular exchange rate or exchange rate regime are unlikely to be able to deal with so many idiosyncratic responses. Nor is it the case that a particular monetary policy strategy, such as inflation targeting, can immunize a domestic economy against all external shocks. International cooperation should instead encourage individual economies to seek out the menu of policies that ensure that each one’s house is in order.

Keywords: USD exchange rate channel; emerging markets; boom-and-busts; monetary policy strategy; globalization (search for similar items in EconPapers)
JEL-codes: F62 F42 E32 E65 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-opm
Date: 2018-01-30, Revised 2018-01-30
Note: LCERPA Working Paper No. 2018-2, January 2018.
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