TY - BOOK ID - 84543030 TI - Limits of Floating Exchange Rates : the Role of Foreign Currency Debt and Import Structure AU - Towbin, Pascal. AU - Weber, Sebastian. PY - 2011 SN - 1455237086 1462305121 1283558181 9786613870636 145522197X PB - Washington, D.C. : International Monetary Fund, DB - UniCat KW - Foreign exchange rates KW - Debts, External KW - Imports KW - International trade KW - Debts, Foreign KW - Debts, International KW - External debts KW - Foreign debts KW - International debts KW - Debt KW - International finance KW - Investments, Foreign KW - Econometric models. KW - Exports and Imports KW - Foreign Exchange KW - International Lending and Debt Problems KW - Trade: General KW - International economics KW - Currency KW - Foreign exchange KW - Foreign currency debt KW - Exchange rate arrangements KW - External debt KW - Exchange rate flexibility UR - https://www.unicat.be/uniCat?func=search&query=sysid:84543030 AB - A traditional argument in favor of flexible exchange rates is that they insulate output better from real shocks, because the exchange rate can adjust and stabilize demand for domestic goods through expenditure switching. This argument is weakened in models with high foreign currency debt and low exchange rate pass-through to import prices. The present study evaluates the empirical relevance of these two factors. We analyze the transmission of real external shocks to the domestic economy under fixed and flexible exchange rate regimes for a broad sample of countries in a Panel VAR and let the responses vary with foreign currency indebtedness and import structure. We find that flexible exchange rates do not insulate output better from external shocks if the country imports mainly low pass-through goods and can even amplify the output response if foreign indebtedness is high. ER -