![]() ![]() To test this hypothesis, we assess the exchange rate policies by their degree of flexibility, itself proxied by the exchange rate volatility, and investigate their relationship to a global financial stress indicator, measured by the volatility on global markets. Consequently, interdependencies across currencies are likely to be exacerbated during crisis periods. ![]() Spillovers from advanced financial markets to currencies in emerging countries stem from the same causes documented in the literature on contagion, such as the drying–up of investors’ liquidity, the rise in risk aversion, and the updating of their risk assessments. Many emerging countries have loosened the link of their currencies to the US dollar since the bursting of the subprime crisis in July 2007. This paper studies the impact of global financial turmoil on the exchange rate policies in emerging countries.
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