HOW THE EXCHANGE RATE REGIME AFFECTS ADJUSTMENT TO LARGE OIL PRICE SWINGS IN OIL EXPORTING COUNTRIES

The aim of this study is to analyze how oil price shocks affect the economic growth of floating exchange rate regimes and fixed exchange rate regimes in oil-exporting countries with a ratio of oil exports to total exports exceeding 70%. Also, this study seeks to determine what monetary and fiscal policies both regimes apply in order to curb business cycles and reduce inflationary and recessionary gaps. The analytical study uses panel data for the period from 1991 to 2019, covering 24 oil-exporting countries, from the World Economic Outlook (WEO) database and World Bank. The econometric model is estimated by applying a panel VECM to examine the short- and long-term interdependencies in the macroeconomic variables. The results demonstrate that when there is a negative shock to the oil price, the exchange rate of the floating exchange rate regimes depreciates, money supply increases, and government spending decreases. In contrast, the exchange rate of the fixed exchange rate regimes fluctuates slightly; the money supply slightly decreases in the near, medium, and long term; and government spending decreases.

Let it float: new empirical evidence on de facto exchange rate regimes and growth in Latin America

This paper reassesses the evidence presented in Levy-Yeyati and Sturzenegger (LYS) (2003) on the relation between exchange rate regimes and economic growth. We use their de facto classification as well as their database, in order to gain robustness and efficiency in the results. We run System GMM estimations. Additionally, we focus on Latin American countries for the period 1974-2004. Differently to LYS, our evidence indicates that exchange rate regimes are not significant to explain economic growth, both in a worldwide sample of countries and particularly in Latin America. However, in this region flexible regimes appear to have more advantages in terms of the role of the determinants of economic growth in relation to the other exchange regimes.

EXOGENOUS INTEREST RATE AND EXCHANGE RATE DYNAMICS UNDER ELASTIC EXPECTATIONS

<div class="WordSection1"><h1 align="center"><strong style="font-size: 10px;">ABSTRACT</strong></h1></div><p>A theory analyzing the short run dynamics of nominal exchange rates under exogenous interest rates and free imperfect international capital markets is presented. Introducing elastic exchange rate expectations leads to cumulative changes in the spot and forward exchange rates in the same direction. We find that free floating exchange rate regimes are intrinsically unstable, as the nominal exchange rate is an institutional or policy variable that has no ‘fundamental equilibrium’ level. Implications for monetary policy and exchange market interventions of this potential instability are derived. Our results help to explain both the empirical prevalence of dirty floating exchange rate regimes and some aspects of the uncovered interest parity ‘failure’.</p><p> </p><p align="center">TASA DE INTERÉS EXÓGENA Y DINÁMICA DEL TIPO DE CAMBIO CON EXPECTATIVAS ELÁSTICAS</p><p align="center"><strong>RESUMEN </strong></p><p>Presentamos un análisis teórico de la dinámica de corto plazo de los tipos de cambio nominales con tasas de interés exógenas y libres e imperfecta movilidad internacional de capitales. La introducción de expectativas de tipo de cambio elásticas conduce a variaciones acumulativas en los tipos de cambio <em>spot</em> y <em>forward</em> en la misma dirección. Los regímenes de tipo de cambio de flotación libre son intrínsicamente inestables, dado que el tipo de cambio nominal es una variable institucional o de política que no tiene un nivel de “equilibrio fundamental”. Derivamos implicaciones de esta inestabilidad potencial para la política monetaria y las intervenciones en los mercados cambiarios. Los resultados ayudan a explicar la prevalencia de tipos de cambio de flotación sucia y aspectos de la “falla” de la paridad de tasas de interés descubierta.</p>