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Could The Exchange Rate Regime Reduce Macroeconomic Volatility?

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Author Info
Diego Bastourre
Jorge Carrera

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Abstract

This study intends to determine the kind of relationship existing between the exchange rate regime and real volatility. After carefully revising theoretical and empirical results of previous research, a new methodology is proposed that corrects deficiencies found in previous empirical papers. The results show non-neutrality of the exchange rate regime. Particularly, it is found that the more rigid the regime, the greater the real volatility. Even when a classification of the exchange rate regime is performed allowing a comparison between consistent pegging and consistent floating, the former has a higher volatility. Countries with "fear of floating" or "inability of pegging" behavior exhibit lower volatility than consistent pegs.

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Paper provided by ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics] in its series Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] with number 067.

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Date of creation: 2004
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Handle: RePEc:anp:en2004:067

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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References listed on IDEAS
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  32. Baxter, Marianne & Stockman, Alan C., 1989. "Business cycles and the exchange-rate regime : Some international evidence," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 377-400, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
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