Friedman Redux

External Adjustment and Exchange Rate Flexibility

Bibliographic Data

ID9703564
AuthorsAtish R Ghosh (International Monetary Fund, corresponding author), Mahvash Saeed Qureshi (International Monetary Fund), Charalambos G Tsangarides (International Monetary Fund), Charalambos Tsangarides (International Monetary Fund)
Year2019
Volume129
Issue617
Pages408-438
Publication date2019-01-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/ecoj.12579
OpenAlexW3122611232
LanguageEN
Citations received1
References cited20

Milton Friedman argued that flexible exchange rates facilitate external adjustment. Recent studies find surprisingly little robust evidence that they do. We argue that this is because they use composite (‘multilateral’) exchange rate regime classifications, which often mask heterogeneous bilateral relationships between countries. Constructing a novel bilateral exchange rate regimes data set for 181 countries over 1980–2011, we find a statistically strong 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, and by Monte Carlo simulations, which show that tests based on standard multilateral regime classifications tend to have low statistical power

Econometrics · Economics · Exchange rate · Exchange-rate flexibility · Exchange-rate regime · Flexibility (engineering · International economics · Monetary economics · Monte Carlo method · Redux · Statistics · Economic Policies and Impacts · Engineering · Global Financial Crisis and Policies · Mathematics · Monetary Policy and Economic Impact

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