European Parliament Library

Friedman Redux :, External Adjustment and Exchange Rate Flexibility, Atish Ghosh, Mahvash Qureshi, Charalambos Tsangarides

Milton Friedman argued that flexible exchange rates would facilitate external adjustment. Recent studies find surprisingly little robust evidence that they do. We argue that this is because they use composite (or aggregate) exchange rate regime classifications, which often mask very heterogeneous bilateral relationships between countries. Constructing a novel dataset of bilateral exchange rate regimes that differentiates by the degree of exchange rate flexibility, as well as by direct and indirect exchange rate relationships, for 181 countries over 1980–2011, we find a significant and empirically robust relationship between exchange rate flexibility and the speed of external adjustment. Our results are supported by several “natural experiments” of exogenous changes in bilateral exchange rate regimes
Table Of Contents
Cover; Contents; I. Introduction; II. Bilateral Exchange Rate Relationships; A. Possible Configurations; B. Regime Classification; III. Exchange Rate Regimes and External Balances: Some Stylized Facts; IV. External Dynamics: Estimation Strategy and Results; A. Composite Regime Classifications; B. Bilateral Regime Classification; C. Natural Experiments; V. Extensions; A. Threshold Effects; B. Corrective Movements in Exchange Rate; C. Financial Openness and External Dynamics; D. Sensitivity Analysis; VI. Conclusion; References; Tables
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (44 p.)
Specific Material Designation
Form Of Item

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