Pegging emerging currencies in the face of dollar swings
Source: Applied Economics, Volume 45, Number 36, 1 December 2013 , pp. 5076-5085(10)
Abstract:The aim of this article is to study ruptures of exchange rate pegs by focusing on the fluctuations of the anchor currency. We test for the hypothesis that currencies linked to the USD are more likely to loosen their peg when the USD is appreciating, while sticking to it otherwise. To this end, we estimate smooth-transition regression models for a sample of 28 emerging currencies over the 1994–2011 period. Our findings show that while the real effective exchange rates of most of these countries tend to co-move with that of the USD in times of depreciation, this relationship is frequently reversed when the US currency appreciates over a certain threshold.
Document Type: Research Article
Affiliations: 1: Bank of France, CEPII, and EconomiX-CNRS, University of Paris Ouest, Paris, France 2: EconomiX-CNRS, University of Paris Ouest, Nanterre, France 3: EconomiX-CNRS and CEPII, University of Paris Ouest, Nanterre Cedex, France
Publication date: December 1, 2013