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Does The Nominal Exchange Rate Regime Matter?

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  • Atish R. Ghosh
  • Anne-Marie Gulde
  • Jonathan D. Ostry
  • Holger C. Wolf

Abstract

The effect of the exchange rate regime on inflation and growth is examined. The 30-year data set includes over 100 countries and nine regime types. Pegged regimes are associated with lower inflation than intermediate or flexible regimes. This anti-inflationary benefit reflects lower money supply growth (a discipline effect) and higher money demand growth (a credibility effect). Output growth does not vary significantly across regimes: Countries with pegged regimes invest more and are more open to international trade than those with flexible rates, but they experience lower residual productivity growth. Output and employment are more variable under pegged rates than under flexible rates.

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Bibliographic Info

Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 97-09.

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Date of creation: 1997
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Handle: RePEc:ste:nystbu:97-09

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Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
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References

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  1. Heller, H Robert, 1978. "Determinants of Exchange Rate Practices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(3), pages 308-21, August.
  2. Williamson, John, 1982. "A survey of the literature on the optimal peg," Journal of Development Economics, Elsevier, vol. 11(1), pages 39-61, August.
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