# **4.2 CCI and Its Correlates over Time**

We now explore the time variation in the relationship between the CCI and its correlates, comparing the pre and post 2000 periods. The results in Figure 10 suggest that while the relationship between the CCI and exogenous variables—that is, the cyclicality of capital flows and the commodity export base—is stable over time, the relationship between the CCI and the policy variables has changed somewhat. The results particularly indicate that the countries with more procyclical currencies have become more prone to maintaining flexible exchange rate regimes and open capital account in the latter period. This is suggestive of a decline in the fear of floating.

**Figure 10: Currency Cyclicality Index and its Correlates over Time**

<!-- Start of picture text --> A. CCI and Commodity Exports B. CCI and Procyclicality of Capital Flows<br>MMLT L T MKD CYPCYPKORKORGEOGEO UKR LUXLUXMARSVPHLISRISSPRTHRV NV SVK R CZE M SVKNHRJPN GRC JPNARITACZE CHN TURINDPHLDEUROMITATURIND V ROMLTUBELESPCHEESPBELLTUDEUCHEHUNAUTGBRAUTHUNFRAUSAFRAGBRESTLVAPOLPOLLVATHAUSAESTIRLBGRBGRIRLTHASWESWE CRI MEXNLDDNK BLZ FINNLDMEXBRADNKBRAFINZAFZAF URY COLPERCOLAUSCANCANAUSPERIDNARGNZLIDNMYSNZLARGMYSBOLISLISL CHLNORRUSIRNRUSBOLCHLIRN NOR CAN BELBELFRACANFRACYPCYPDEUNORDNKNORMLTMLTAUTHKGGBRHKGDEUAUTDNKITITAGBRIRLIRL A LUXLUXCHECHETHACZEARGFINCZESWEFINARGJPNSWEJPNESPESPPRTNLDMYSMYSPRTKORNLDAUSMARMARAUSCHLCHLKORHRVHRVISRTHASVKSVKPERISRPHLZAFPHL GRCURY ZAFBRAMEXISLISLCOLIDNMEXNZLCOLLVALVANZLUSAUSAIDNIINDHUN N PERDESTHUNESTTURBGR UKR CRIBGRCRIBRATUR<br>PRT -.5 0 .5 1<br>Capital Flow Cyclicality<br>-.01 0 .01 .02<br>Commodity Export Full Period Full: CCI = 0.05(1.35)+0.41(2.91)*Capital Flow Cycl.<br>Sub Period: 2000-2013 Sub: CCI = -0.02(0.36)+0.40(2.12)*Capital Flow Cycl.<br>Full Period Full: CCI = 0.10(2.90)+10.25(2.29)*Commodity Export<br>Sub Period: 2000-2013 Sub: CCI = 0.03(0.66)+10.72(2.04)*Commodity Export t-stats in parenthesis<br>t-stats in parenthesis<br>C. CCI and Capital Controls D. CCI and Exchange Rate Regimes<br>PRT LTUBELUSADNKCHENLDESTESTJPNITAFRACHEIRLDEUFINAUTNLDLTUIRLESPLVALVAJPNDEUUSAPERBEL CAN GBRNORHUNPER GRC CZE NZLISRCAN URY NZLSWE GBR<br>BGRCYPBOLMARBGRGEOZAFCYP F RA BLZ AUT CMKD BOLMLTMYS R ICHN NOMARITASVNMLT RS ISRIRNHRVDNKVNGEOZAFIDNRUSESPPOLHUNSVKAUSINDPTHA R SVKCOLCHLTPOLBRACZERUSHRVFINPHLIRNROMSWECOLAUSARGISLINDISLPHLBRAROMMEXMEXTHA M YSTUR UKR ARGTURCHLKOR IDNKOR BLZ AUTBGRHKGCYPDNKFINFRAESTGRCDEUIRLITANLDESPUKRAUTNLDHKGFRAIRNESTMARCYPGRCIRLESPCHNMYSLTUSVFINCRIDNK N PRTTHAITABOLMLTSVKMARINDMYSSVKHRVINDPERCHNSVNRUSLTUCRIGEOMKDCZECANPHLKORBGRHRVMKDARGLVAPHLSWEIDNCHEHUISRIRNCZEMLT N BOL H NZLURYCOUNUKRCANMEXGBR L ISLARGCHLDEUNORBRACHLCOLIDNKORNZLMEXNORPOLSWETHACHEGBRISLLVAISRROM RUSGEOPOLAUSURYPER TURJPNUSAAUSJPNZAFUSABRAZAFTUR ROM<br>-.5 0 .5 1 PRT<br>CCI 1 2 3 4 5<br>Exchange Rate Regime<br>Full Period Full: Capital Openness = 1.04(6.69)-1.57(3.17)*CCI<br>Sub Period: 2000-2013 Sub: Capital Openness = 1.22(7.79)-1.06(2.62)*CCI Full Period Full: CCI = -0.14(1.47)+0.10(2.80)*Exchange Rate Reg.<br>Sub Period: 2000-2013 Sub: CCI = -0.42(3.64)+0.22(3.61)*Exchange Rate Reg.<br>t-stats in parenthesis<br>t-stats in parenthesis<br>1 1<br>.5<br>.5<br>CCI<br>CCI 0<br>0<br>-.5<br>-.5<br>3<br>1<br>2<br>1 .5<br>CCI<br>0 0<br>Capital Account Openness<br>-1<br>-.5<br><!-- End of picture text --> These patterns confirm the observation made in Vegh and Vuletin (2012) that even if a large number of developing countries have continued to pursue procyclical monetary policies, several of them have “graduated” in the last decade and have adopted a countercyclical monetary policy stance. They attribute this transition to a decline in their fear of floating but also indicate that many emerging markets that have transitioned have done so after adopting an explicit inflation targeting 15