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on International Finance |
| By: | Marc Pourroy (Centre d'Economie de la Sorbonne) |
| Abstract: | Are emerging economies implementing inflation targeting (IT) with a perfectly flexible exchange-rate arrangement, as developed economies do, or have these countries developed their own IT framework? This paper offers a new method for assessing exchange-rate policies that combines the use of “indicator countries”, providing an empirical definition of exchange-rate flexibility or rigidity, and clustering through Gaussian mixture estimates in order to identify countries' de facto regimes. By applying this method to 19 inflation-targeting emerging economies, I find that the probability of those countries having a perfectly flexible arrangement as developed economies do is 52%, while the probability of having a managed float system, obtained through foreign exchange market intervention, is 28%, and that of having a rigid exchange-rate system (similar to those of pegged currencies) is 20%. The results also provide evidence of two different monetary regimes under inflation targeting: flexible IT when the monetary authorities handle only one tool, the interest rate, prevailing in ten economies, and hybrid IT when the monetary authorities add foreign exchange interventions to their toolbox, prevailing in the remaining nine economies. |
| Keywords: | Inflation-targeting, foreign exchange interventions, Gaussian mixture model. |
| JEL: | E31 E40 E58 F31 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:13074&r=ifn |
| By: | Reinhart, Carmen |
| Abstract: | This paper focuses on some of the macroeconomic risks that lie ahead for Latin America. The discussion is informed by my work on crises and capital flows and their macroeconomic consequences. The trends and initial conditions that allowed the region to weather the global economic storm of 2008-2009 are discussed, as is the subsequent reversal of some of those benign trends. I review the historical patterns connecting large capital inflow surges, or “capital flow bonanzas,” with the likelihood of a variety of crises—banking, currency, external default and inflation. For Latin America, in particular, large capital flow bonanzas have seldom ended well. The implications for inflation of importing (via less than fully flexible exchange rates) the expansionary policy of the “North” are discussed. |
| Keywords: | capital inflows, appreciation, currency crises, banking crises, inflation, debt |
| JEL: | E3 E31 F3 F30 G01 N16 N26 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:51282&r=ifn |
| By: | Andreas Bachmann; Stefan Leist |
| Abstract: | Sudden stops in capital inflows were a main characteristic of the emerging market crisis during the 1990’s. Concerns about them have recurred in the light of recently increased global stability risk and the quantitative easing that led to substantial capital inflows in emerging economies. We add to the empirical literature that relies on a univariate approach by using a multivariate framework to assess the effect of sudden stops on economic growth and by the identification of sudden stop shocks using a Markov switching VAR and sign restrictions. The Markov switching VAR approach dates sudden stop periods comparable to the existing literature. It reveals a significant negative influence of the regime switch on economic growth that is robust across different estimation methods. Moreover, the Markov switching VAR also indicates that the reaction of macroeconomic variables to the identified shock based on sign restrictions is regime dependent. |
| Keywords: | sudden stops; current account; sign restriction; Markov switching |
| JEL: | F32 F41 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp1307&r=ifn |