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A multinomial logit approach to exchange rate policy classification with an application to growth

Listed author(s):
  • Dubas, Justin M.
  • Lee, Byung-Joo
  • Mark, Nelson C.

We model a country's de jure exchange rate policy as the choice from a multinomial logit response conditioned on the volatility of its bilateral exchange rate, the volatility of its international reserves, and the volatility of its effective exchange rate. The category with the highest predictive probability implied by the logit regressions serves as our de facto exchange rate policy. An empirical investigation into the relationship between the de facto classifications and GDP growth finds that growth is higher under stable currency-value policies. For non-industrialized countries, a more nuanced characterization of exchange rate policy finds that those who exhibit 'fear of floating' experience significantly higher growth.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 29 (2010)
Issue (Month): 7 (November)
Pages: 1438-1462

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Handle: RePEc:eee:jimfin:v:29:y:2010:i:7:p:1438-1462
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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  1. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," CEMA Working Papers 594, China Economics and Management Academy, Central University of Finance and Economics.
  2. Michael D. Bordo & Marc Flandreau, 2001. "Core, Periphery, Exchange Rate Regimes, and Globalization," Sciences Po publications n°3077, Sciences Po.
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  19. Paolo Mauro & Grace Juhn, 2002. "Long-Run Determinants of Exchange Rate Regimes; A Simple Sensitivity Analysis," IMF Working Papers 02/104, .
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