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Could the Exchange Rate Regime Reduce Macroeconomic Volatility?

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Author Info
Jorge Carrera
Diego Bastourre

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Abstract

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

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Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 309.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:309

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Related research
Keywords: real volatility; exchange rate regime; panel data;

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

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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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