European Parliament Library

Limits of floating exchange rates, the role of foreign currency debt and import structure, Pascal Towbin and Sebastian Weber

Label
Limits of floating exchange rates, the role of foreign currency debt and import structure, Pascal Towbin and Sebastian Weber
Language
eng
Bibliography note
Includes bibliographical references
Illustrations
illustrations
Index
no index present
Literary Form
non fiction
Main title
Limits of floating exchange rates
Nature of contents
bibliographydictionaries
Responsibility statement
Pascal Towbin and Sebastian Weber
Series statement
IMF Working Paper, WP/11/42
Sub title
the role of foreign currency debt and import structure
Summary
A traditional argument in favor of flexible exchange rates is that they insulate output better from real shocks, because the exchange rate can adjust and stabilize demand for domestic goods through expenditure switching. This argument is weakened in models with high foreign currency debt and low exchange rate pass-through to import prices. The present study evaluates the empirical relevance of these two factors. We analyze the transmission of real external shocks to the domestic economy under fixed and flexible exchange rate regimes for a broad sample of countries in a Panel VAR and let the re
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; II. Theory; A. IS-LM-BP with Foreign Debt and Incomplete Pass-through; B. Adjustment to an External Demand Shock; 1. The Peg; 2. The Float; 1. Summary of Theoretical Predictions; 3. Simulation of Responses under Peg and Float; 1. Output response to a negative external demand shock: Difference between float and peg; III. Data; IV. Model and Estimation; A. Empirical Model and Identification; B. Interaction Terms; 2. Kernel density of import structure and debt under float and peg; C. Estimation and Inference; V. ResultsA. Floats versus Pegs3. Impulse Responses for an initial 10% Terms of Trade Shock under LYS classification; 2. Output and Investment Response to External Shock, Conditional on the Exchange Rate Regime; B. The Role of Foreign Currency Debt; 4. Impulse Responses for a negative 10% Terms of Trade Shock under LYS classification; 3. Output and Investment Response to External Shock, Conditional on Short Term External Debt and Exchange Rate Regime; 5. Cumulative Response of Output and Investment to a 10% ToT Shock in the second year as a function of foreign currency debtC. The Role of Import Structure6. Impulse Responses for a Negative 10% Terms of Trade Shock under LYS classification; 7. Cumulative Response of Output and Investment to a 10% ToT Shock in the second year as a function of raw material share in total imports; 4. Output and Investment Response to External Shock, Conditional on Import Structure and Exchange Rate Regime; D. The Joint Role of Foreign Currency Debt and Import Structure; 8. Output response to a negative 10 % terms of trade shock in the second year: Difference between float and peg; VI. Conclusion; A. Model; A.1. Workers