02004cas a2200253 a 4500 AALejournalIMF007058 230101c9999 xx r poo 0 0eng d 5.00 USD 9781455219001 1018-5941 BD-DhAAL BD-DhAAL Towbin, Pascal. Limits of Floating Exchange Rates : the Role of Foreign Currency Debt and Import Structure / Pascal Towbin, Sebastian Weber. Washington, D.C. : International Monetary Fund, 2011. 1 online resource (51 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students 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. Mode of access: Internet Weber, Sebastian. IMF Working Papers; Working Paper ; No. 2011/042 Full text available on IMF http://elibrary.imf.org/view/journals/001/2011/042/001.2011.issue-042-en.xml IMF e-Library