FRIEDMAN REDUX: EXTERNAL ADJUSTMENT AND EXCHANGE RATE FLEXIBILITY
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 b...
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| Veröffentlicht in: | The Economic journal (London) 2019-01, Vol.129 (617), p.408-438 |
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| container_title | The Economic journal (London) |
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| creator | Ghosh, Atish R. Qureshi, Mahvash S. Tsangarides, Charalambos G. |
| description | 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. |
| doi_str_mv | 10.1111/ecoj.12579 |
| format | Article |
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| ispartof | The Economic journal (London), 2019-01, Vol.129 (617), p.408-438 |
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| language | eng |
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| source | Oxford University Press Journals All Titles (1996-Current); EBSCOhost Business Source Complete |
| subjects | 2008-2011 Adjustment Außenwirtschaftliches Gleichgewicht Classification Economic models Economic theory Flexibility Flexibler Wechselkurs Floating exchange rates Foreign exchange rates Friedman International relations International trade Statistical power Welt |
| title | FRIEDMAN REDUX: EXTERNAL ADJUSTMENT AND EXCHANGE RATE FLEXIBILITY |
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