Are Depreciations as Contractionary as Devaluations?  A Comparison of Selected Emerging and Industrial Economies

Ahmed, Shaghil; Gust, Christopher J.; Huntley, Jonathan; Kamin, Steven B.

doi:10.2139/ssrn.333403

Cited by 20 publications

(9 citation statements)

References 15 publications

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“…Focusing on 23 OECD countries, Kalyoncu et al (2008) find that real depreciations are contractionary in the long-run in six countries and expansionary in three; and fail to find evidence of a long-run effect on output in the remaining countries. In contrast, Ahmed et al (2002) compare devaluation episodes across a group of developing and industrial economies, where industrial economies are split according to their exchange rate regime. They find that for industrial countries both, devaluations and depreciations, are expansionary, while for developing countries devaluations are contractionary.…”

Section: Expansionary or Contractionary Currency Collapses?mentioning

confidence: 99%

Chronicle of currency collapses: Re examining the effects on output

Bussière

Saxena

Tovar

2012

Journal of International Money and Finance

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This publication is available on the BIS website (www.bis.org). AbstractThe impact of currency collapses (ie large nominal depreciations or devaluations) on real output remains unsettled in the empirical macroeconomic literature. This paper provides new empirical evidence on this relationship using a dataset for 108 emerging and developing economies for the period 1960-2006. We provide estimates of how these episodes affect growth and output trend. Our main finding is that currency collapses are associated with a permanent output loss relative to trend, which is estimated to range between 2% and 6% of GDP. However, we show that such losses tend to materialise before the drop in the value of the currency, which suggests that the costs of a currency crash largely stem from the factors leading to it. Taken on its own (ie ceteris paribus) we find that currency collapses tend to have a positive effect on output. More generally, we also find that the likelihood of a positive growth rate in the year of the collapse is over two times more likely than a contraction; and that positive growth rates in the years that follow such episodes are the norm. Finally, we show that the persistence of the crash matters, ie one-time events induce exchange rate and output dynamics that differ from consecutive episodes. JEL classification: E32, F31, F41, F43

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Section: Expansionary or Contractionary Currency Collapses?mentioning

confidence: 99%

Chronicle of currency collapses: Re examining the effects on output

Bussière

Saxena

Tovar

2012

Journal of International Money and Finance

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“…Exceptions that analyze output developments around the time of a currency crisis in a broad sample of countries are Ahmed et al (2002), Aziz, Caramazza, and Salgado (2000), Barro (2001), Bordo et al (2001), Gupta, Mishra, and Sahay (2000), and Milesi-Ferretti and Razin (2000).…”

Section: Empirical Literature On the Output Costs Of Financial Crisesmentioning

confidence: 99%

How Bad Are Twins? Output Costs of Currency and Banking Crises

Hutchison¹,

Noy²

2005

Journal of Money, Credit, and Banking

201

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We investigate the output effects of banking and currency crises in emerging markets, focusing on whether "twin crises" entail especially large losses. Recent literature emphasizes the costs of financial crises, and suggests that twin crises are particularly damaging to the real economy. Using a panel data set for 1975-97, we find that currency (banking) crises are very costly, reducing output by about 5%-8% (8%-10%) over a 2-4 year period. The cumulative loss of both types of crises is therefore very large. We do not find, however, additional feedbacks or interactive effects associated with twin crises further damaging the economy.JEL codes: F43, G15, G21, O40 Keywords: banking crisis, balance of payments, twin crisis, growth.Severe financial crises occur with some frequency in emerging market economies-more than 51 currency and 33 banking crises episodes over the past 25 years in our emerging markets sample and 20 occurrences of "twin crises"-currency and banking crises that occurred simultaneously. Moreover, this frequency of financial crises appears to be a reoccurring phenomenon, persistent over time and across regions of the world (Bordo et al., 2001, Glick andHutchison, 2001). A large and growing empirical literature attempts to explain the factors that cause currency, banking, and twin crises, as well as their timing, on the basis of macroeconomic, institutional, and structural factors (see, for example, Arteta and Eichengreen, 2002, We thank participants at the UCSC workshop series on currency crises for helpful suggestions on an

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“…The impact stabilizes after 8 months at approximately 0.8% below its base value. Such a finding of the contractionary effect due to devaluation is along the lines of studies by Rajan and Shen [39], Ahmed et al [40], and Bahmani-Oskooee and Miteza [36]. Indeed, Kim and Ying [41] have underlined that devaluation may be more contractionary than previously thought because of financial liberalization and improvement in information technology; devaluation worsens the balance of payments of countries with heavy foreign currency liabilities.…”

Section: Malaysia Andmentioning

confidence: 59%

Malaysia and China: The Trade Balances, Foreign Exchanges and Crises Impacts

Chan¹

2017

International Trade - On the Brink of Change

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China appears as the biggest trading partner for ASEAN economies, but it is inconclusive whether the complementarities between China and regional economies offset China's competitive threat. This study tries to assess if real exchange fluctuations and the demand-supply channels determine the Malaysia-China trade balances in the global crises era, 1997-2010. The finding generally supports the complementary role of China in the Malaysia-China bilateral trading. However, despite the long-run effect of real exchange on trade balances, the Keynesian demand channel was not uphold during and after the global financial crisis-due to the contractionary effect on Malaysian output. The Chinese inflation impact is also not evident following the foreign exchange shocks. Meanwhile, currency devaluation for exports gains is insufficient to sustain Malaysia output expansion against China. Further productivity growth in real and tradable sectors is essentially needed.

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Are Depreciations as Contractionary as Devaluations? A Comparison of Selected Emerging and Industrial Economies

Cited by 20 publications

References 15 publications

Chronicle of currency collapses: Re examining the effects on output

Chronicle of currency collapses: Re examining the effects on output

How Bad Are Twins? Output Costs of Currency and Banking Crises

Malaysia and China: The Trade Balances, Foreign Exchanges and Crises Impacts

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