Front Matter Page
European Department
Contents
Abstract
I. Introduction
II. The Dynamics of Contractionary Depreciations
III. A Simple Empirical Setup
IV. Large Depreciations Dataset
A. Identifying Large Depreciation Episodes
B. Characterizing Large Depreciation Episodes
V. Determinants of Real Exchange Rate Overshooting
VI. Output Implications of Exchange Rate Overshooting
A. Choosing the Balance Sheet Effect Measure
B. Main Results
C. Domestic Demand vs. Export
D. Output Loss Over the Medium Term
E. Extended Results and Robustness
F. The Importance of Banking Crises
G. Addressing Endogeneity Concerns
VII. Conclusions and Policy Implications
References
Annex 1. Debt Intolerance as Consequence of Financial Frictions
Annex 2. Criteria for Inclusion of Large Depreciation Episodes
Annex 3. Additional Robustness
A. Restricted Samples
B. Alternative Measures of Overshooting
Annex Figures and Tables
Figures
Figure 1. Stylized Representation of a Large Depreciation Episode
Figure 2. Dynamics of a currency crisis with balance sheet effect
Figure 3. Large depreciation (Indonesia 1997)
Figure 4.REER path in a “textbook” large depreciation (Korea 1997)
Figure 5.Baseline overshooting measure computed for stable and unstable large depreciations
Figure 6.Output loss calculation example
Figure 7.Output loss over time (% of T – 1 GDP)
Figure 8.Summary statistics of key characteristics of large depreciation episodes
Figure 9.The overshooting-based balance sheet effect and its components vs. output loss in T + 1
Figure 10.Marginal effect of exchange rate overshooting on output loss in T + 1 by percentile of external short-term debt (stable episodes only)
Figure 11.Marginal effect of pre-depreciation external short-term debt on output loss in T + 1 by percentile of overshooting (stable episodes only)
Figure 12. Marginal effects of overshooting on domestic demand loss and non-oil exports loss in T + 1
Figure 13. Marginal effects of T – 1 external short-term debt on domestic demand loss and non-oil exports loss in T + 1
Figure 14. Marginal effect of pre-depreciation external short-term debt, overshooting and equilibrium depreciation on output loss in T through T + 4
Figure 15. The overshooting-based balance sheet effect vs. output loss in T + 1
Figure 16. Marginal effect of pre-depreciation external short-term debt, overshooting and equilibrium depreciation on output loss in T through T + 4 (dual crises excluded)
Tables
Table 1. Criteria cutoffs
Table 2. OLS regressions on REER overshooting
Table 3. OLS regressions on output loss in T + 1: Comparison of balance sheet effect measures
Table 4. OLS regressions on output loss in T + 1: Main specifications
Table 5. OLS regressions on output loss in T + 1: Extended specifications (all episodes)
Table 6. 2SLS and 3SLS regressions on overshooting and output loss in T + 1