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The Mussa Puzzle: A Generalization

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  • Cosimo Petracchi

Abstract

One of the most compelling pieces of evidence for monetary non-neutrality is the Mussa puzzle, in which 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 thirty-one European 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

  • Cosimo Petracchi, 2021. "The Mussa Puzzle: A Generalization," Working Papers 2021-001, Brown University, Department of Economics.
    • Handle: RePEc:bro:econwp:2021-001
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    1. Cosimo Petracchi & Luca Riva & Marco Stenborg Petterson, 2026. "Exchange-Rate Regimes and the Behaviour of Exporters," CSEF Working Papers 789, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    2. 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

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; 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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