Published in:Bank of England Working Paper ; No. 544
Extent:
1 Online-Ressource (32 p)
Language:
English
DOI:
10.2139/ssrn.2649851
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 21, 2015 erstellt
Description:
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 (ie 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. In contrast to pioneering work on the subject, I find robust evidence that flexible exchange rate arrangements do deliver a faster current account adjustment among non-industrial countries. Additionally, I try to identify channels through which this effect could be taking place. Evidence suggests that exports respond to expenditure-switching behaviour by consumers when faced with changes in international relative prices. There is mixed evidence of credit acting as an additional avenue of influence