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Boom-and-Bust Cycles in Emerging Markets: How Important is the Exchange Rate?

Author

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  • Pierre Siklos

    (Wilfrid Laurier University)

Abstract
This paper examines the macroeconomic implications of exchange rate shocks in a sample of 13 emerging market and 6 advanced economies since the early 1990s. Factor-augmented vector autoregressions are estimated with three separate factors identified. They are: real, monetary and financial factors. The main conclusion is that there is no ‘one size fits all’ when interpreting the domestic responses to an exchange rate shock. International policies that aim to define a particular exchange rate or exchange rate regime are unlikely to be able to deal with so many idiosyncratic responses. Nor is it the case that a particular monetary policy strategy, such as inflation targeting, can immunize a domestic economy against all external shocks. International cooperation should instead encourage individual economies to seek out the menu of policies that ensure that each one’s house is in order.

Suggested Citation

  • Pierre Siklos, 2018. "Boom-and-Bust Cycles in Emerging Markets: How Important is the Exchange Rate?," LCERPA Working Papers 0108, Laurier Centre for Economic Research and Policy Analysis, revised 30 Jan 2018.
    • Handle: RePEc:wlu:lcerpa:0108
    Note: LCERPA Working Paper No. 2018-2, January 2018.
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    File URL: http://www.lcerpa.org/public/papers/LCERPA_2018_2.pdf
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    Cited by:

    1. Liming Chen & Zhi Zhang & Ziqing Du & Lingling Deng, 2021. "Heterogeneous determinants of the exchange rate market in China with structural breaks," Applied Economics, Taylor & Francis Journals, vol. 53(59), pages 6839-6854, December.
    2. Degasperi,Riccardo & Hong, Seokki Simon & Ricco, Giovanni, 2020. "The Global Transmission of U.S. Monetary Policy," The Warwick Economics Research Paper Series (TWERPS) 1257, University of Warwick, Department of Economics.
    3. Riccardo Degasperi & Fabrizio Venditti, 2024. "US monetary policy spillovers to the euro area," Questioni di Economia e Finanza (Occasional Papers) 891, Bank of Italy, Economic Research and International Relations Area.
    4. Siklos, Pierre L., 2021. "The macroeconomic response to real and financial factors, commodity prices, and monetary policy: International evidence," Economic Systems, Elsevier, vol. 45(1).
    5. Pierre L. Siklos, 2020. "Looking into the Rear-View Mirror: Lessons from Japan for the Eurozone and the U.S?," IMES Discussion Paper Series 20-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
    6. Alain Kabundi & Tumisang Loate & Nicola Viegi, 2020. "Spillovers of the Conventional and Unconventional Monetary Policy from the US to South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 88(4), pages 435-471, December.
    7. Erdem, F. Pinar & Geyikci, Utku Bora, 2021. "Local, global and regional shocks indices in emerging exchange rate markets," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 98-113.
    8. Bampi, Rodrigo E. & Colombo, Jefferson A., 2021. "Heterogeneous effects of foreign exchange appreciation on industrial output: Evidence from disaggregated manufacturing data," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 431-451.

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    More about this item

    Keywords

    USD exchange rate channel; emerging markets; boom-and-busts; monetary policy strategy; globalization;
    All these keywords.

    JEL classification:

    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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