000 04229cam a22006014a 4500
001 2371
003 The World Bank
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008 020129s1999 dcu i001 0 eng
024 8 _a10.1596/1813-9450-2371
035 _a(The World Bank)2371
100 1 _aGiugale, Marcelo
245 1 0 _aShock Persistence and the Choice of Foreign Exchange Regime
_h[electronic resource] :
_bAn Empirical Note from Mexico /
_cGiugale, Marcelo
260 _aWashington, D.C.,
_bThe World Bank,
_c1999
300 _a1 online resource (20 p.)
520 3 _aJuly 2000 - Empirical econometric evidence shows that Mexico's simulated output recovery after a negative external shock was faster (a third as long) when the country's policymakers let the nominal foreign exchange rate float than when they fixed it, and much faster than in other developing countries that kept nominal foreign exchange rates constant, especially those that resorted to currency board arrangements to support that constancy. The academic and policy debate about optimal foreign exchange rate regimes for emerging economies has focused more on the theoretical costs and benefits of possible regimes than on their actual performance. Giugale and Korobow report on what can be called exchange-rate-regime-dependent differential shock persistence-that is, the time output takes to return to its trend after a negative shock-in a sample of countries representing various points on the spectrum of nominal foreign exchange flexibility. They find strong evidence that Mexico's simulated output recovery after a negative external shock was faster (a third as long) when the country's policymakers let the nominal foreign exchange rate float than when they fixed it, and much faster than in other developing countries that kept nominal foreign exchange rates constant, especially those that resorted to currency board arrangements to support that constancy. These results are insufficient to guide the choice of regime (they lack general equilibrium value and are based on a limited sample of countries), but they highlight an important practical consideration in making that choice: How long it takes for output to adjust after negative shocks is sensitive to the level of rigidity of the foreign exchange regime. This factor may be critical when the social costs of those adjustments are not negligible. This paper-a product of the Mexico Country Department, Latin America and the Caribbean Region-is part of a larger effort in the region to understand policy options open to developing countries for handling macroeconomic volatility in a globalized economy. The authors may be contacted at mgiugale@worldbank.org or akorobow@worldbank.org.
650 4 _aCurrencies and Exchange Rates
650 4 _aCurrency
650 4 _aCurrency Board
650 4 _aCurrency Board Arrangements
650 4 _aCurrency Boards
650 4 _aDebt Markets
650 4 _aDomestic Economy
650 4 _aEconometric Evidence
650 4 _aEconomic Stabilization
650 4 _aEconomic Theory and Research
650 4 _aEconomies
650 4 _aEmerging Markets
650 4 _aExchange Rate Flo Exchange Rate Regime
650 4 _aExchange Regime
650 4 _aExternal Shock
650 4 _aFinance and Financial Sector Development
650 4 _aFinancial Crises
650 4 _aFiscal and Monetary Policy
650 4 _aForeign Exchange
650 4 _aForeign Exchange Rate
650 4 _aForeign Exchange Rates
650 4 _aInflation
650 4 _aInternational Financial Integration
650 4 _aMacroeconomic Management
650 4 _aMacroeconomics and Economic Growth
650 4 _aMonetary Unions
650 4 _aOpen Capital Accounts
650 4 _aPrivate Sector Development
650 4 _aPublic Sector Development
650 4 _aStructural Reform
700 1 _aGiugale, Marcelo
700 1 _aKorobow, Adam
776 1 8 _aPrint version:
_iGiugale, Marcelo.
_tShock Persistence and the Choice of Foreign Exchange Regime.
_dWashington, D.C., The World Bank, 1999
830 0 _aPolicy research working papers.
830 0 _aWorld Bank e-Library.
856 4 0 _uhttp://elibrary.worldbank.org/doi/book/10.1596/1813-9450-2371
999 _c20913
_d20913