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Do flexible exchange rates facilitate external adjustment? A dynamic approach with time-varying and asymmetric volatility
Jönköping University, Jönköping International Business School, JIBS, Economics. Department of Applied Statistics, College of Business and Economics, University of Rwanda, Kigali, Rwanda.ORCID iD: 0000-0001-6611-4762
2017 (English)In: International Economics and Economic Policy, ISSN 1612-4804, E-ISSN 1612-4812, Vol. 14, no 4, p. 625-642Article in journal (Refereed) Published
Abstract [en]

This paper revisits the claim that flexible exchange rates facilitate external adjustment. While previous studies have used exchange rate regime as a proxy for exchange rate flexibility, in this study there is evidence of ARCH effects in exchange rate, and thus GARCH models are employed to estimate volatility. A dynamic panel data model is then specified, and the Arellano-Bond estimator and the Blundell-Bond estimator are employed to estimate the effect of exchange rate flexibility on the speed of adjustment of current account in a panel of 28 emerging and developing economies. There is robust evidence that flexible exchange rates indeed facilitate smoother adjustment of current account imbalances.

Place, publisher, year, edition, pages
Springer, 2017. Vol. 14, no 4, p. 625-642
Keywords [en]
Arellano-Bond estimator, Current account adjustment, Exchange rate volatility, Flexible exchange rates, GARCH, Leverage effect
National Category
Economics
Identifiers
URN: urn:nbn:se:hj:diva-34621DOI: 10.1007/s10368-016-0341-7Scopus ID: 2-s2.0-84966312491OAI: oai:DiVA.org:hj-34621DiVA, id: diva2:1062254
Available from: 2017-01-05 Created: 2017-01-05 Last updated: 2018-01-24Bibliographically approved

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Habimana, Olivier

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