Exchange rate policy and external debt in emerging economies: an empirical analysis

Official URL: http://192.168.1.20/record=b1505275 (Table of Contents)

In this thesis, we empirically analyze the e ects of exchange rate policy on external debt accumulation in emerging market economies with a sample of 15 countries over the period 1998-2010. The exchange rate policy is captured by the de facto exchange rate classi cation of Ilzetzki, Reinhart, and Rogo (2008). This classification is based on the actual exchange rate behavior rather than the officially declared regimes. Therefore, it is expected to better reflect the exchange rate policies actually followed by the countries. In the baseline regression, we find that fixed exchange rate regimes have a significantly negative effect on debt accumulation compared to flexible regimes while intermediate regimes do not have a significant effect. When we separate the intermediate flexibility group into two, we see that a lower level of flexibility leads to a positive e ect on debt accumulation, while a higher level of exibility still does not a have signi cant e ect relative to full exibility. However, this result is mostly driven by Argentina in the sample. When we look at the e ect of periods in which there is a transition in exchange rate policy, we observe that these periods have a significantly positive effect on debt accumulation. Our results are robust to several tests.