Working Paper: CEPR ID: DP12696
Authors: Maurice Obstfeld; Jonathan D. Ostry; Mahvash S. Qureshi
Abstract: This paper examines the relevance of exchange rate regimes in the transmission of global financial shocks to domestic financial and macroeconomic conditions. Our findings suggest that even in today’s highly financially integrated world, the nominal exchange rate regime does matter—at least for emerging market economies. The transmission of global financial shocks to domestic variables is magnified under fixed exchange rate regimes relative to more flexible regimes. For advanced economies, however, the jury is still out, as the recent paucity of truly fixed regimes among these economies poses a challenge for estimating the effect of exchange rate flexibility.
Keywords: trilemma; global financial cycle; emerging market economies
JEL Codes: F31; F36; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| VXO index (C58) | credit growth (E51) |
| nominal exchange rate regime (F33) | transmission of global financial shocks (F65) |
| fixed exchange rate regime (F33) | correlation with global financial conditions (F65) |
| nominal exchange rate regime (F33) | boom-bust cycle (E32) |
| advanced economies (O52) | relationship with global financial shocks (F65) |