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The Mussa puzzle: A generalization


  • Petracchi, Cosimo


One of the most compelling pieces of evidence for monetary non-neutrality is the Mussa puzzle: the break in the monetary regime when the Bretton Woods system broke down increased the volatility of not only the nominal exchange rate but the real exchange rate. Using data covering forty-four countries from 1954 to 2019, I find that the Mussa puzzle is generalizable: any break in a monetary regime that changes the volatility of the nominal exchange rate also changes the volatility of the real exchange rate. This provides further evidence of monetary non-neutrality.

Suggested Citation

  • Petracchi, Cosimo, 2022. "The Mussa puzzle: A generalization," European Economic Review, Elsevier, vol. 149(C).
  • Handle: RePEc:eee:eecrev:v:149:y:2022:i:c:s0014292122001295
    DOI: 10.1016/j.euroecorev.2022.104222

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    1. Victor Shevchuk & Roman Kopych, 2021. "Exchange Rate Volatility, Currency Misalignment, and Risk of Recession in the Central and Eastern European Countries," Risks, MDPI, vol. 9(5), pages 1-19, May.

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    More about this item


    Monetary regime; Real exchange rate; Bretton Woods system; European Monetary System;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration


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