Exchange Rate: Shock Generator or Shock Absorber?
AbstractThe paper re-assesses the impact of exchange rate regimes on macroeconomic performance. We test for the relationship between de jure and de facto exchange rate classifications on the one hand, and inflation, output growth and output volatility on the other. We find that, once high-inflation outliers are excluded from the sample, only hard exchange rate pegs are associated with lower inflation compared to the floating regime. There is no significant relationship between output growth and exchange rate regimes, confirming results from previous studies. De jure pegged regimes (broadly defined) are correlated with higher output volatility, but this relationship is reversed for the de facto classification. The last result points to a potential endogeneity problem present when the de facto classification is used in testing for the relationship between exchange rate behavior and macroeconomic performance.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0272.
Length: 33 Pages
Date of creation: 2004
Date of revision:
exchange rate regimes; inflation; output volatility;
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.:
- Guillermo A. Calvo & Carmen M. Reinhart, 2000.
"Fear of Floating,"
NBER Working Papers
7993, National Bureau of Economic Research, Inc.
- Aaron Tornell & Andres Velasco, 1995.
"Fixed versus Flexible Exchange Rates: Which Provides More Fiscal Discipline?,"
NBER Working Papers
5108, National Bureau of Economic Research, Inc.
- Tornell, Aaron & Velasco, Andres, 2000. "Fixed versus flexible exchange rates: Which provides more fiscal discipline?," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 399-436, April.
- Tornell, Aaron & Velasco, Andres, 1995. "Fixed Versus Flexible Exchange Rates: Which Provides More Fiscal Discipline," Working Papers 95-06, C.V. Starr Center for Applied Economics, New York University.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2004.
"The Modern History of Exchange Rate Arrangements: A Reinterpretation,"
The Quarterly Journal of Economics,
MIT Press, vol. 119(1), pages 1-48, February.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
- Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
- Sebastian Edwards, 2000. "Interest Rates, Contagion and Capital Controls," NBER Working Papers 7801, National Bureau of Economic Research, Inc.
- Ricardo Hausmann & Ugo Panizza & Ernesto H. Stein, 2000.
"Why Do Countries Float the Way They Float?,"
Research Department Publications
4205, Inter-American Development Bank, Research Department.
- Thomas Philippon & Jeromin Zettelmeyer & Eduardo Borensztein, 2001. "Monetary Independence in Emerging Markets: Does the Exchange Rate Regime Make a Difference?," IMF Working Papers 01/1, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katarzyna SidÅ‚o).
If references are entirely missing, you can add them using this form.