Economic integration and the exchange rate regime: how damaging are currency crises?

  • We use consumer price data for 205 cities/regions in 21 countries to study deviations from the law-of-one-price before, during and after the major currency crises of the 1990s. We combine data from industrialised nations in North America (Unites States, Canada, Mexico), Europe (Germany, Italy, Spain and Portugal) and Asia (Japan, Korea, New Zealand, Australia) with corresponding data from emerging market economies in the South America (Argentine, Bolivia, Brazil, Columbia) and Asia (India, Indonesia, Malaysia, Philippines, Taiwan, Thailand). We confirm previous results that both distance and border explain a significant amount of relative price variation across different locations. We also find that currency attacks had major disintegration effects by significantly increasing these border effects, and by raising within country relative price dispersion in emerging market economies. These effects are found to be quite persistent since relative price volatility across emerging markets today is still significantly larger than a decade ago. JEL classification: F40, F41

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Author:Günter W. Beck, Axel A. Weber
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2001,13
Series (Serial Number):CFS working paper series (2001, 13 r)
Document Type:Working Paper
Year of Completion:2005
Year of first Publication:2001
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:contagion; currency crisis; law of one price; purchasing power parity; real exchange rate; relative price volatility; spatial data
GND Keyword:Verbraucherpreis; Währungskrise; Geschichte 1990-1999
Issue:This version: November 2001
Page Number:38
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht
Licence (German):License LogoCreative Commons - Namensnennung 4.0