Real Effects of Collapsing Exchange Rate Regimes: An Application to Mexico
AbstractThis paper examines the impact of a collapsing exchange rate regime on output in an open economy in which shocks to capital flows and exports predominate. A sticky-price rational expectations model is used to compare the variability of output under the collapsing regime to that under alternative fixed and flexible regimes. Output is found to be most stable under a flexible rate. A counterfactual exercise is performed for Mexico, using the parallel market exchange rate as a proxy for the shadow flexible rate. The main finding is that, had Mexico been on a flexible rate for the past two decades, instead of a series of collapsing regimes, the variance of real output would have been reduced by half.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 99-10.
Length: 41 pages
Date of creation: 1999
Date of revision:
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Other versions of this item:
- Osakwe, Patrick N. & Schembri, Lawrence L., 2002. "Real effects of collapsing exchange rate regimes: an application to Mexico," Journal of International Economics, Elsevier, vol. 57(2), pages 299-325, August.
- Patrick N. Osakwe & Lawrence L. Schembri, 1999. "Real Effects of Collapsing Exchange Rate Regimes: An Application to Mexico," Carleton Economic Papers 99-07, Carleton University, Department of Economics, revised Aug 2002.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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