Advanced Search
MyIDEAS: Login to save this paper or follow this series

Analysis of exchange-rate regime effect on growth: theoretical channels and empirical evidence with panel data

Contents:

Author Info

  • Petreski, Marjan

Abstract

The aim of this paper is to empirically investigate the relationship between exchange-rate regime and economic growth, building on underlying theoretical examination and shortcomings of empirical literature. Channels through which regime might influence growth could be distinguished at: i) level of uncertainty imposed by certain regime, which than affects trading and investment decisions; ii) regime as shock absorber; iii) its linkage to productivity growth, which usually interferes with financial development. Empirical research offers divergent result though and is criticized because of: measurement error in regimes’ classification; appropriateness of growth framework; endogeneity of exchange-rate regime and/or other regressors; Lucas critique; sample-selection bias and survivor bias. Applying dynamic system-GMM panel estimation on 169 countries over the period 1976-2006 and addressing all shortcoming of the empirical literature, this paper finds that the exchange-rate regime is not statistically significant in explaining growth. The conclusion is robust to dividing the sample on developing versus advanced countries and considering two sub-periods. In all specifications, the exchange-rate regime does not even approach conventional significance levels. Observation de-facto versus de-jure regime matters neither. No empirical grounds were established that coefficients in the regression suffer the Lucas critique. Hence, the main conclusion is that, as nominal variable, the exchange rate regime does not have explanatory power over growth. --

Download Info

If 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.
File URL: http://www.economics-ejournal.org/economics/discussionpapers/2009-49
Download Restriction: no

File URL: http://econstor.eu/bitstream/10419/28947/1/614392748.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2009-49.

as in new window
Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:zbw:ifwedp:200949

Contact details of provider:
Postal: Kiellinie 66, D-24105 Kiel
Phone: +49 431 8814-1
Fax: +49 431 8814528
Email:
Web page: http://www.economics-ejournal.org/
More information through EDIRC

Related research

Keywords: Exchange rate regime; economic growth;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521898010.
  2. Jorge Carrera & Diego Bastourre, 2004. "Could the Exchange Rate Regime Reduce Macroeconomic Volatility?," Econometric Society 2004 Latin American Meetings, Econometric Society 309, Econometric Society.
  3. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, Elsevier, vol. 126(1), pages 25-51, May.
  4. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521725200.
  5. Jeannine Bailliu & Robert Lafrance & Jean-François Perrault, 2002. "Does Exchange Rate Policy Matter for Growth?," Working Papers, Bank of Canada 02-17, Bank of Canada.
  6. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  7. Philippe Aghion & Philippe Bacchetta & Romain Rancière & Kenneth Rogoff, 2005. "Productivity growth and the exchange rate regime: The role of financial development," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 850, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  9. Arellano, Manuel, 1989. "A note on the Anderson-Hsiao estimator for panel data," Economics Letters, Elsevier, Elsevier, vol. 31(4), pages 337-341, December.
  10. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, Elsevier, vol. 87(1), pages 115-143, August.
  11. Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308 Elsevier.
  12. Sarafidis, Vasilis & Yamagata, Takashi & Robertson, Donald, 2009. "A test of cross section dependence for a linear dynamic panel model with regressors," Journal of Econometrics, Elsevier, Elsevier, vol. 148(2), pages 149-161, February.
  13. Hands,D. Wade, 2001. "Reflection without Rules," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521797962.
  14. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9215, Faculty of Economics, University of Cambridge.
  15. Robert P. Flood & Andrew K. Rose, 1993. "Fixing Exchange Rates: A Virtual Quest for Fundamentals," NBER Working Papers 4503, National Bureau of Economic Research, Inc.
  16. Aasim M. Husain & Ashoka Mody & Nienke Oomes & Robin Brooks & Kenneth Rogoff, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 03/243, International Monetary Fund.
  17. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(3), pages 500-521, June.
  18. Viaene, Jean-Marie & de Vries, Casper G., 1992. "International trade and exchange rate volatility," European Economic Review, Elsevier, Elsevier, vol. 36(6), pages 1311-1321, August.
  19. Paul M. Romer, 1994. "The Origins of Endogenous Growth," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(1), pages 3-22, Winter.
  20. Hjalmar Böhm & Michael Funke, 2001. "Does the Nominal Exchange Rate Regime Matter for Investment?," CESifo Working Paper Series 578, CESifo Group Munich.
  21. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(4), pages 73-96, Fall.
  22. Michele Cavallo, 2005. "To float or not to float? exchange rate regimes and shocks," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue jan7.
  23. Torben G. Andersen & Hyung-Jin Chung & Bent E. Sorensen, . "EMM Estimation of a Stochastic Volatility Model: A Monte Carlo Study," Computing in Economics and Finance 1997, Society for Computational Economics 6, Society for Computational Economics.
  24. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 53-78, July.
  25. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
  26. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(3), pages 485-512, December.
  27. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  28. Baxter, Marianne & Stockman, Alan C., 1989. "Business cycles and the exchange-rate regime : Some international evidence," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(3), pages 377-400, May.
  29. Domac, Ilker & Peters, Kyle & Yuzefovich, Yevgeny, 2001. "Does the exchange rate regime affect macroeconomic performance : evidence from transition economics," Policy Research Working Paper Series 2642, The World Bank.
  30. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  31. Brada, Josef C & Mendez, Jose, 1988. "Exchange Rate Risk, Exchange Rate Regime and the Volume of International Trade," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 41(2), pages 263-80.
  32. Emilia Magdalena Jurzyk & Bernhard Fritz-Krockow, 2004. "Will You Buy My Peg? the Credibility of a Fixed Exchange Rate Regime As a Determinant of Bilateral Trade," IMF Working Papers 04/165, International Monetary Fund.
  33. Ramon Moreno, 2001. "Pegging and stabilization policy in developing countries," Economic Review, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, pages 17-29.
  34. Andres Velasco & Roberto Chang, 2000. "Exchange-Rate Policy for Developing Countries," American Economic Review, American Economic Association, American Economic Association, vol. 90(2), pages 71-75, May.
  35. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 5-27, July.
  36. Paul De Grauwe & Gunther Schnabl, 2004. "Exchange Rate Regimes and Macroeconomic Stability in Central and Eastern Europe," International Finance, EconWPA 0404011, EconWPA.
  37. Behr, Andreas, 2003. "A comparison of dynamic panel data estimators: Monte Carlo evidence and an application to the investment function," Discussion Paper Series 1: Economic Studies 2003,05, Deutsche Bundesbank, Research Centre.
  38. Hausman, Jerry A. & Taylor, William E., 1981. "Panel data and unobservable individual effects," Journal of Econometrics, Elsevier, Elsevier, vol. 16(1), pages 155-155, May.
  39. Hongwei Du & Zhen Zhu, 2001. "The effect of exchange-rate risk on exports: Some additional empirical evidence," Journal of Economic Studies, Emerald Group Publishing, Emerald Group Publishing, vol. 28(2), pages 106-121, January.
  40. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 78(243), pages 375-80, December.
  41. Sevestre, P. & Trognon, A., 1985. "A note on autoregressive error components models," Journal of Econometrics, Elsevier, Elsevier, vol. 28(2), pages 231-245, May.
  42. Ilker Domac & Kyle Peters & Yevgeny Yuzefovichî, 2003. "Does the Exchange Rate Regime Matter for Inflation? Evidence from Transition Economies," Working Papers 0304, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  43. Everaert, Gerdie & Pozzi, Lorenzo, 2007. "Bootstrap-based bias correction for dynamic panels," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(4), pages 1160-1184, April.
  44. Bowsher, Clive G., 2002. "On testing overidentifying restrictions in dynamic panel data models," Economics Letters, Elsevier, Elsevier, vol. 77(2), pages 211-220, October.
  45. Sebastián Edwards, 1996. "Economic policy and the dynamics of growth," Estudios de Economia, University of Chile, Department of Economics, University of Chile, Department of Economics, vol. 23(2 Year 19), pages 137-155, December.
  46. Nelson, Richard R & Winter, Sidney G, 1974. "Neoclassical vs. Evolutionary Theories of Economic Growth: Critique and Prospectus," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 84(336), pages 886-905, December.
  47. Hernandez-Verme, Paula, 2002. "Inflation, Growth and Exchange Rate Regimes in Small Open Economies," MPRA Paper 16699, University Library of Munich, Germany, revised Aug 2009.
  48. Gylfasonabc, Thorvaldur, 2000. "Fix or flex? Alternative exchange rate regimes in an era of global capital mobility," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 11(2), pages 173-189, December.
  49. repec:chb:bcchwp:03 is not listed on IDEAS
  50. Barry Eichengreen & David Leblang, 2003. "Exchange Rates and Cohesion: Historical Perspectives and Political-Economy Considerations," Journal of Common Market Studies, Wiley Blackwell, Wiley Blackwell, vol. 41(5), pages 797-822, December.
  51. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(4), pages 1127-70, November.
  52. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  53. Boris Lokshin, 2007. "A Monte Carlo comparison of alternative estimators for dynamic panel data models," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(1), pages 15-18.
  54. Kristian Nilsson & Lars Nilsson, 2000. "Exchange Rate Regimes and Export Performance of Developing Countries," The World Economy, Wiley Blackwell, vol. 23(3), pages 331-349, 03.
  55. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  56. Petreski, Marjan, 2009. "Exchange-rate regime and economic growth: a review of the theoretical and empirical literature," Economics Discussion Papers 2009-31, Kiel Institute for the World Economy.
  57. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, Elsevier, vol. 65(1), pages 9-15, October.
  58. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  59. Stephen Bond & Anke Hoeffler & Jonathan Temple, 2001. "GMM Estimation of Empirical Growth Models," Economics Papers 2001-W21, Economics Group, Nuffield College, University of Oxford.
  60. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, Econometric Society, vol. 49(6), pages 1417-26, November.
  61. Sanjin Piragic & Kenneth Jameson, 2005. "The determinants of Latin American exchange rate regimes," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(13), pages 1465-1474.
  62. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. " Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, Springer, vol. 1(3), pages 363-89, September.
  63. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, Elsevier, vol. 49(6), pages 1603-1635, August.
  64. Collins, Susan M., 1996. "On becoming more flexible: Exchange rate regimes in Latin America and the Caribbean," Journal of Development Economics, Elsevier, Elsevier, vol. 51(1), pages 117-138, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Marjan Petreski, 2011. "A Markov Switch to Inflation Targeting in Emerging Market Peggers with a Focus on the Czech Republic, Poland and Hungary," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 57-75.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:ifwedp:200949. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.