Exchange Rate Regimes and International Business Cycles
Abstract
This paper investigates the impact of exchange rate regimes on international business cycles and focuses on the consequences of membership to the European Monetary System. The volatility puzzle uncovered by Baxter and Stockman [1989, Journal of Monetary Economics 23, 377–401] after assessing the consequences of the Bretton Woods system turns out to be a robust stylized fact: real and nominal exchange rates display a higher volatility under floating rates while the variability of macroeconomic quantities remains unchanged across exchange rate regimes. Besides, there is evidence that fixed rates are associated with enhanced comovement in output, consumption and investment.We find that a two-country model, featuring monopolistic competition, pricing-to-market, and price stickiness, captures all of the empirical features of the data but one; namely the stronger output comovement following the transition to fixed rates. (Copyright: Elsevier)Download Info
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 6 (2003)
Issue (Month): 2 (April)
Pages: 338-361
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Related research
Keywords: Exchange rate regimes; Monopolistic competition; Price rigidities; Pricing-to-market;Other versions of this item:
- Sopraseuth, T., 2000. "Exchange Rate Regimes and International Business Cycle," Papiers d'Economie Mathématique et Applications 2000.17, Université Panthéon-Sorbonne (Paris 1).
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F31 - International Economics - - International Finance - - - Foreign Exchange
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Bergman, Michael, 2004. "How Similar Are European Business Cycles?," Working Papers 2004:9, Lund University, Department of Economics.
- Martin Gaechter & Aleksandra Riedl & Doris Ritzberger-Gruenwald, 2012. "Business Cycle Synchronization in the Euro Area and the Impact of the Financial Crisis," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 33-60, May.
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- Cunha, Alexandre B., 2005. "A Direct Proof of the First Welfare Theorem," Ibmec Working Papers wpe_30, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
- Lahura, Erick & Vega, Marco, 2013. "Regímenes Cambiarios y Desempeño Macroeconómico: Una Evaluación de la Literatura," Working Papers 2013-006, Banco Central de Reserva del Perú.
- Saadet Kasman & Duygu Ayhan, 2006. "Macroeconomic Volatility under Alternative Exchange Rate Regimes in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 6(2), pages 37-58.
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