Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212766 
Year of Publication: 
2013
Series/Report no.: 
BOFIT Discussion Papers No. 11/2013
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
In this paper, we examine whether pre-crisis leading indicators help explain pressures on the exchange rate (and its volatility) during the global financial crisis. We use a unique data set that covers 149 countries and 58 indicators, and estimation techniques that are robust to model uncertainty. Our results are threefold: First and foremost, we find that price stability plays a pivotal role as a determinant of exchange rate pressures. More specifically, the currencies of countries that experienced higher inflation prior to the crisis tend to be more affected in times of stress. Second, we investigate potential effects that vary with the level of pre-crisis inflation. In this vein, our results reveal that domestic savings reduce the severity of pressures in countries that experienced a low-inflation environment prior to the crisis. Finally, we find evidence of the mitigating effects of international reserves on the volatility of exchange rate pressures.
Subjects: 
Exchange market pressures
financial crisis
JEL: 
F31
F37
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-14-1
Document Type: 
Working Paper

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