2025/06/16 by Paul R. Bergin, Kyunghun Kim, Ju H. Pyun +1 · 1 voice · 2 citations
Economics, Econometrics and Finance · Social Sciences · #Contemporary and Historical Greek Studies #Current (fluid) #Current account #Economics #Exchange rate #Global Financial Crisis and Policies #Keynesian economics #Macroeconomics #Neoclassical economics #Physics #Positive economics #Thermodynamics
paper · doi:10.1016/j.jinteco.2025.104121
published in Journal of International Economics 157, 104121 (Elsevier BV)
openalex publication_date 2025/06/16 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/27
This paper finds that one-sided nominal exchange rate intervention in the form of “fear of appreciation” slows adjustment of current account surpluses, providing novel support for Friedman's claims of faster adjustment under flexible exchange rates . We find evidence that countries classified as more flexible have faster convergence than peggers for current account deficits, but not so for surpluses. This asymmetry is associated with a one-sided muting of exchange rate appreciations among some countries. We then develop a multi-country monetary model augmented with a “fear of appreciation” policy rule governing foreign exchange intervention, solved as an occasionally binding constraint. The model demonstrates a mechanism by which government capital flows supporting exchange rate regimes can impinge on international financial adjustment. The model accounts for substantial asymmetries in the speed of current account adjustment, based on exchange rate regime and current account sign.