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The Importance of the Exchange Rate Regime in Limiting Misalignment

  • Dubas, Justin M.

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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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
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  1. John Williamson, 2000. "Exchange Rate Regimes for Emerging Markets: Reviving the Intermediate Option," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa60, February.
  2. Ghiath Shabsigh & Ilker Domaç, 1999. "Real Exchange Rate Behavior and Economic Growth: Evidence from Egypt, Jordan, Morocco, and Tunisia," IMF Working Papers 99/40, International Monetary Fund.
  3. Chihwa Kao & Min-Hsien Chiang, 1999. "On the Estimation and Inference of a Cointegrated Regression in Panel Data," Center for Policy Research Working Papers 2, Center for Policy Research, Maxwell School, Syracuse University.
  4. 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.
  5. Levy Yeyati, Eduardo & Sturzenegger, Federico & Reggio, Iliana, 2010. "On the endogeneity of exchange rate regimes," European Economic Review, Elsevier, vol. 54(5), pages 659-677, July.
  6. repec:sae:niesru:v:153:y::i:1:p:73-83 is not listed on IDEAS
  7. Rudiger Dornbusch & Alejandro Werner, 1994. "Mexico: Stabilization, Reform, and No Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 253-316.
  8. Sebastian Edwards & Sweder van Wijnbergen, 1987. "Tariffs, the Real Exchange Rate and the Terms of Trade: On Two Popular Propositions in International Economics," NBER Working Papers 2365, National Bureau of Economic Research, Inc.
  9. G. C. Lim, 2000. "Misalignment and Managed Exchange Rates: An Application to the Thai Baht," IMF Working Papers 00/63, International Monetary Fund.
  10. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  11. 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.
  12. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
  13. John Cady, 2003. "The Equilibrium Real Exchange Rate of the Malagasy Franc: Estimation and Assessment," IMF Working Papers 03/28, International Monetary Fund.
  14. Stanley Fischer, 2002. "Financial Crises and Reform of the International Financial System," NBER Working Papers 9297, National Bureau of Economic Research, Inc.
  15. David M. Kemme & Saktinil Roy, 2005. "Real Exchange Rate Misalignment: Prelude to Crisis?," William Davidson Institute Working Papers Series wp797, William Davidson Institute at the University of Michigan.
  16. Nelson C. Mark & Donggyu Sul, 2003. "Cointegration Vector Estimation by Panel DOLS and Long-run Money Demand," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(5), pages 655-680, December.
  17. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  18. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
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