This paper looks at the correlation between the cyclical components of gross domestic product and the exchange rate and classifies countries’ currencies as pro-cyclical if they appreciate in good times, countercyclical if they appreciate in bad times and a cyclical otherwise. With this classification, the paper shows that: (i) the countries that are commodity exporters and experience procyclical capital flows tend to have procyclical currencies; (ii) countries with procyclical currencies tend to restrict their capital accounts, perhaps as an attempt to reduce the degree of procyclicality; (iii) countries with procyclical currencies pursue procyclical monetary policy; (iv) however, in the last decade, there is a disconnect between the cyclicality of currency and monetary policy; and (v) the disconnect may reflect a decline in the fear of floating, which can be partially attributed to an improvement in countries’ net foreign asset positions.
تفاصيل
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المؤلف
Cordella,Tito, Gupta, Poonam
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تاريخ الوثيقة
2015/03/11
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نوع الوثيقة
مقال بمجلة علمية
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رقم التقرير
100264
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مجلد رقم
1
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عدد المجلدات
1
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البلد
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المنطقة
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تاريخ الإفصاح
2015/10/22
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حالة الافصاح
Disclosed
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اسم الوثيقة
What makes a currency procyclical? An empirical investigation
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كلمة أساسية
monetary policy;capital flow;de facto exchange rate regime;nominal effective exchange rate;flexible exchange rate regime;Exchange Rates;real effective exchange rate;limited exchange rate flexibility;cyclical monetary policy;net foreign currency;net foreign asset;cyclical component;capital account openness;open capital account;inflation targeting framework;real gdp;real exchange rate;nominal exchange rate;exchange rate behavior;international currency;country fixed effect;local currency debt;cost of service;independent monetary policy;exchange rate volatility;terms of trade;central government expenditure;foreign asset position;aggregate saving rate;rate of depreciation;transmission of productivity;short-term interest rate;global financial crisis;business cycle fluctuation;exchange rate fluctuation;commodity price shock;debt management policy;demand for money;exchange rate movement;quality control mechanism;gross domestic product;commodity export;emerging economy;Emerging economies;advanced economy;commodity exporter;positive correlation;domestic currencies;significant correlation;Fiscal policies;fiscal policy;advanced country;
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