Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/bok/wpaper/1417.html
   My bibliography  Save this paper

Impact of Exchange Rate Flexibility on Current Account Rebalancing - with a Focus on International Capital Flows (in Korean)

Author

Listed:
  • Geun-Young Kim

    (International Economics Team, Economic Research Institute, The Bank of Korea)

Abstract
Despite the growing attention since the global financial crisis to the role of exchange rate flexibility in global rebalancing, few empirical studies have examined whether a more flexible exchange rate actually helps mitigate global imbalances. Furthermore it is becoming ever more important to consider the active roles of international capital flows, which have been increasing sharply since the 1990's. Against this backdrop, this paper conducts an empirical analysis of the relationship between current account rebalancing and exchange rate flexibility with a particular focus on the role of international capital flows. The results show, firstly, that a more flexible exchange rate de facto helps adjust current account deficits or surpluses significantly. Secondly, greater exchange rate flexibility also encourages inflows of portfolio and other investments, leading to offsetting effects that lower the probability of current account adjustment. This finding implies that foreign capital inflows tend to finance deficits in current-account deficit countries, while helping promote productivity in tradable sectors in current account surplus countries. Thirdly, in countries with more flexible exchange rates, the marginal effect of facilitating current account deficit adjustment and capital inflows is smaller; that is, there exist non-linear effects in the role of exchange rate flexibility. Lastly, if the probability of current account surplus adjustment is higher, foreign portfolio investment tends to flow out significantly, but, there is no such systematic relationship in the case of current account deficit adjustment. These results suggest that greater exchange rate flexibility may not always enhance current account rebalancing, and utilizing foreign capital inflows efficiently is crucial in achieving a sound and resilient macro economy.

Suggested Citation

  • Geun-Young Kim, 2014. "Impact of Exchange Rate Flexibility on Current Account Rebalancing - with a Focus on International Capital Flows (in Korean)," Working Papers 2014-17, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1417
    as

    Download full text from publisher

    File URL: https://www.bok.or.kr/ucms/cmmn/file/fileDown.do?menuNo=500788&atchFileId=KO_00000000000107048&fileSn=1
    File Function: Working Paper, 2014
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Financial Flows; Current Account Adjustment; Exchange Rate Flexibility; Global Rebalancing;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bok:wpaper:1417. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Economic Research Institute (email available below). General contact details of provider: https://edirc.repec.org/data/imbokkr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.