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The Importance of the Exchange Rate Regime in Limiting Misalignment

  • Dubas, Justin M.
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    Summary This paper explores how the choice of a country's exchange rate regime may affect exchange rate misalignment for developing and developed countries. A measure of misalignment is obtained by using a panel cointegration vector estimator. This paper finds that for developing countries, an intermediate exchange rate regime (a regime falling somewhere between a pure float and a hard peg) is most effective in preventing exchange rate misalignment. Additionally, the choice of an exchange rate regime as a means to limit misalignment matters for developing countries, but does not seem to matter for developed countries.

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    File URL: http://www.sciencedirect.com/science/article/B6VC6-4X1XYNK-1/2/34cd1a90f5a0d1f6e312c155ce381a47
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    Article provided by Elsevier in its journal World Development.

    Volume (Year): 37 (2009)
    Issue (Month): 10 (October)
    Pages: 1612-1622

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    Handle: RePEc:eee:wdevel:v:37:y:2009:i:10:p:1612-1622
    Contact details of provider: Web page: http://www.elsevier.com/locate/worlddev

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    1. Chihwa Kao & Min-Hsien Chiang, 1997. "On the Estimation and Inference of a Cointegrated Regression in Panel Data," Econometrics 9703001, EconWPA.
    2. Jacob A. Frenkel & Morris Goldstein, 1989. "Exchange Rate Volatility and Misalignment: Evaluating Some Proposals for Reform," NBER Working Papers 2894, National Bureau of Economic Research, Inc.
    3. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
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    7. Levy-Yeyati, Eduardo & Sturzenegger, Federico & Reggio, Iliana, 2006. "On the Endogeneity of Exchange Rate Regimes," Working Paper Series rwp06-047, Harvard University, John F. Kennedy School of Government.
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    11. John Cady, 2003. "The Equilibrium Real Exchange Rate of the Malagasy Franc: Estimation and Assessment," IMF Working Papers 03/28, International Monetary Fund.
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    15. Stanley Fischer, 2002. "Financial Crises and Reform of the International Financial System," NBER Working Papers 9297, National Bureau of Economic Research, Inc.
    16. Edwards, Sebastian & van Wijnbergen, Sweder, 1987. "Tariffs, The Real Exchange Rate and the Terms of Trade: On Two Popular Propositions in International Economics," Oxford Economic Papers, Oxford University Press, vol. 39(3), pages 458-64, September.
    17. Paul Krugman, 1993. "Recent Thinking About Exchange Rate Determination and Policy," RBA Annual Conference Volume, in: Adrian Blundell-Wignall (ed.), The Exchange Rate, International Trade and the Balance of Payments Reserve Bank of Australia.
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