Flexible exchange rates speed up external adjustment, study finds.
Flexible exchange rates can help countries adjust to external economic changes. Previous studies didn't show this clearly because they looked at exchange rates in a general way. By analyzing specific bilateral relationships between 181 countries from 1980 to 2011, researchers found that countries with more flexible exchange rates adjust faster to external changes. This relationship was consistent even when looking at natural experiments where exchange rate regimes changed unexpectedly.