Hidden Bibliographic Details
| Other authors / contributors: | Qureshi, Mahvash Saeed, (IMF Staff), author.
Tsangarides, Charalambos G., (IMF Staff), author.
International Monetary Fund. Research Department, issuing body.
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| Notes: | "Research Department"--Page 2 of pdf.
"August 2014"--Page 2 of pdf.
Includes bibliographical references (pages 26-27).
Online resource; title from pdf title page (IMF.org Web site, viewed on August 13, 2014).
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| Summary: | 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. --Abstract.
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