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A multinomial logit approach to exchange rate policy classification with an application to growth

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Author Info

  • Dubas, Justin M.
  • Lee, Byung-Joo
  • Mark, Nelson C.

Abstract

We model a country's de jure exchange rate policy as the choice from a multinomial logit response conditioned on the volatility of its bilateral exchange rate, the volatility of its international reserves, and the volatility of its effective exchange rate. The category with the highest predictive probability implied by the logit regressions serves as our de facto exchange rate policy. An empirical investigation into the relationship between the de facto classifications and GDP growth finds that growth is higher under stable currency-value policies. For non-industrialized countries, a more nuanced characterization of exchange rate policy finds that those who exhibit 'fear of floating' experience significantly higher growth.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 29 (2010)
Issue (Month): 7 (November)
Pages: 1438-1462

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Handle: RePEc:eee:jimfin:v:29:y:2010:i:7:p:1438-1462

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Web page: http://www.elsevier.com/locate/inca/30443

Related research

Keywords: Exchange rate regime de facto classification Growth;

References

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  1. Alberto Alesina & Alexander Wagner, 2003. "Choosing (And Reneging On) Exchange Rate Regimes," Harvard Institute of Economic Research Working Papers 2008, Harvard - Institute of Economic Research.
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  15. Eduardo Levy-Yeyati & Federico Sturzenegger, 2003. "To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth," American Economic Review, American Economic Association, vol. 93(4), pages 1173-1193, September.
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  17. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
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  19. McFadden, Daniel, 1974. "The measurement of urban travel demand," Journal of Public Economics, Elsevier, vol. 3(4), pages 303-328, November.
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Citations

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Cited by:
  1. Wang, P.J., 2013. "A driver currency hypothesis," Economics Letters, Elsevier, vol. 118(1), pages 60-62.
  2. Charles Engel, 2013. "Exchange Rates and Interest Parity," NBER Working Papers 19336, National Bureau of Economic Research, Inc.
  3. Fischer, Christoph, 2011. "Currency blocs in the 21st century," Discussion Paper Series 1: Economic Studies 2011,12, Deutsche Bundesbank, Research Centre.
  4. Alsakka, Rasha & ap Gwilym, Owain, 2012. "Foreign exchange market reactions to sovereign credit news," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 845-864.

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