Fixing for Your Life / Guillermo A. Calvo, Carmen M. Reinhart.

Format:

Book

Author/Creator:

Calvo, Guillermo A.

Contributor:

National Bureau of Economic Research.

Reinhart, Carmen M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8006.

NBER working paper series no. w8006

Language:

English

Subjects (All):

Foreign exchange rates--Developing countries.

Foreign exchange rates.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Cambridge, Massachussetts : National Bureau of Economic Research, [2000]

Summary:

The Asian crisis took place against a background of exchange rate regimes that were characterized as soft pegs. This has led many analysts to conclude that the peg did it' and that emerging markets (EMs) should just say no' to pegged exchange rates. We present evidence that EMs are very different from developed economies in key dimensions that play a key role when it comes to the choice of exchange rate regime--floating for EMs is no panacea. In EMs currency crashes are contractionary, the adjustments in the current account are far more acute. Credibility and market access, as captured in the behavior of credit ratings and interest rates, is adversely affected by devaluations or depreciations. Exchange rate volatility is more damaging to trade and the passthrough from exchange rate swings to inflation is far higher in EMs. These differences between emerging and developed economies may explain EMs reluctance to tolerate large exchange rate movements. In a simple framework we illustrate why large exchange rate swings are feared when access to international credit may be lost.

Notes:

Print version record

November 2000.