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Global Financial Cycles and the Exchange Rate Regime: A Perspective from Emerging Markets

Author

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  • Maurice Obstfeld
  • Jonathan D. Ostry
  • Mahvash S. Qureshi
Abstract
This paper examines the claim that exchange rate regimes are of little relevance in the transmission of global financial conditions to domestic financial and macroeconomic conditions. Our findings suggest that exchange rate regimes do 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.

Suggested Citation

  • Maurice Obstfeld & Jonathan D. Ostry & Mahvash S. Qureshi, 2018. "Global Financial Cycles and the Exchange Rate Regime: A Perspective from Emerging Markets," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 499-504, May.
    • Handle: RePEc:aea:apandp:v:108:y:2018:p:499-504
    Note: DOI: 10.1257/pandp.20181057
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    References listed on IDEAS

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    1. Hélène Rey, 2016. "International Channels of Transmission of Monetary Policy and the Mundellian Trilemma," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(1), pages 6-35, May.
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    4. Maurice Obstfeld & Alan M. Taylor, 1998. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," NBER Chapters, in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 353-402, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Avdjiev, Stefan & Gambacorta, Leonardo & Goldberg, Linda S. & Schiaffi, Stefano, 2020. "The shifting drivers of global liquidity," Journal of International Economics, Elsevier, vol. 125(C).
    2. Lu, Dong & Liu, Jialin & Zhou, Hang, 2022. "Global financial conditions, capital flows and the exchange rate regime in emerging market economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    3. Lee, Chien-Chiang & Yahya, Farzan, 2024. "Mitigating energy instability: The influence of trilemma choices, financial development, and technology advancements," Energy Economics, Elsevier, vol. 133(C).
    4. Alberto Botta & Giuliano Toshiro Yajima & Gabriel Porcile, 2023. "Structural change, productive development, and capital flows: does financial “bonanza” cause premature deindustrialization?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 32(2), pages 433-473.
    5. Nicolas Eterovic & Dalibor Eterovic, 2022. "Stocks, Bonds and the US Dollar - Measuring Domestic and International Market Developments in an Emerging Market," Working Papers Central Bank of Chile 964, Central Bank of Chile.
    6. Christian Friedrich & Pierre Guérin & Danilo Leiva-Leon, 2020. "Monetary Policy Independence and the Strength of the Global Financial Cycle," Staff Working Papers 20-25, Bank of Canada.
    7. Thornton, John & Vasilakis, Chrysovalantis, 2023. "Bank regulations and surges and stops in credit: Panel evidence," Journal of Financial Stability, Elsevier, vol. 67(C).
    8. Anusha Chari & Karlye Dilts Stedman & Christian Lundblad, 2020. "Capital Flows in Risky Times: Risk-on/Risk-off and Emerging Market Tail Risk," NBER Working Papers 27927, National Bureau of Economic Research, Inc.
    9. Arbatli-Saxegaard, Elif & Furceri, Davide & Gonzalez Dominguez, Pablo & Ostry, Jonathan & Peiris, Shanaka, 2022. "Spillovers from US Monetary Shocks: Role of Policy Drivers and Cyclical Conditions," ADBI Working Papers 1317, Asian Development Bank Institute.
    10. Scheubel, Beatrice & Stracca, Livio & Tille, Cédric, 2019. "Taming the global financial cycle: What role for the global financial safety net?," Journal of International Money and Finance, Elsevier, vol. 94(C), pages 160-182.
    11. Ferrero, Andrea & Habib, Maurizio Michael & Stracca, Livio & Venditti, Fabrizio, 2022. "Leaning against the global financial cycle," Working Paper Series 2763, European Central Bank.
    12. Habib, Maurizio Michael & Stracca, Livio & Venditti, Fabrizio, 2020. "The fundamentals of safe assets," Journal of International Money and Finance, Elsevier, vol. 102(C).
    13. Arbatli-Saxegaard, Elif C. & Furceri, Davide & Dominguez, Pablo Gonzalez & Ostry, Jonathan D. & Peiris, Shanaka Jayanath, 2024. "Spillovers from US monetary policy: Role of policy drivers and cyclical conditions," Journal of International Money and Finance, Elsevier, vol. 143(C).
    14. Kalemli-Özcan, Sebnem, 2019. "US Monetary Policy and International Risk Spillovers," CEPR Discussion Papers 14053, C.E.P.R. Discussion Papers.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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