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Exchange rate regimes and international business cycles

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  • Thepthida Sopraseuth

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

Abstract

This paper investigates the impact of exchange rate regimes on international business cycles and focuses on the consequences of membership to the European Monetary System. The volatility puzzle uncovered by Baxter and Stockman [1989, Journal of Monetary Economics 23, 377-401] after assessing the consequences of the Bretton Woods system turns out to be a robust stylized fact: real and nominal exchange rates display a higher volatility under floating rates while the variability of macroeconomic quantities remains unchanged across exchange rate regimes. Besides, there is evidence that fixed rates are associated with enhanced comovement in output, consumption and investment. We find that a two-country model, featuring monopolistic competition, pricing-to-market, and price stickiness, captures all of the empirical features of the data but one; namely the stronger output comovement following the transition to fixed rates. © 2003 Elsevier Science (USA). All rights reserved.

Suggested Citation

  • Thepthida Sopraseuth, 2003. "Exchange rate regimes and international business cycles," Post-Print hal-02878011, HAL.
    • Handle: RePEc:hal:journl:hal-02878011
    DOI: 10.1016/S1094-2025(02)00017-0
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    Cited by:

    1. Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (ed.), 2009. "Deutschland im internationalen Konjunkturzusammenhang. Expertise im Auftrag der Bundesregierung," Occasional Reports / Expertisen, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, number 75372.
    2. Lahura, Erick & Vega, Marco, 2013. "Regímenes cambiarios y desempeño macroeconómico: Una evaluación de la literatura," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 26, pages 101-119.
    3. Martin Gächter & Aleksandra Riedl & Doris Ritzberger-Grünwald, 2012. "Business Cycle Synchronization in the Euro Area and the Impact of the Financial Crisis," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 33-60.
    4. U. Michael Bergman, 2004. "How Similar Are European Business Cycles?," EPRU Working Paper Series 04-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Nov 2004.
    5. Saadet Kasman & Duygu Ayhan, 2006. "Macroeconomic Volatility under Alternative Exchange Rate Regimes in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 6(2), pages 37-58.
    6. Jakob De Haan & Robert Inklaar & Richard Jong‐A‐Pin, 2008. "Will Business Cycles In The Euro Area Converge? A Critical Survey Of Empirical Research," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 234-273, April.
    7. Chrysost BANGAKE & Jean-Baptiste DESQUILBET & Nabil JEDLANE, 2008. "The Exchange Rate Regimes for Small Countries: an Application to the Maghreb Countries," LEO Working Papers / DR LEO 1601, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    8. Bergman, Michael, 2004. "How Similar Are European Business Cycles?," Working Papers 2004:9, Lund University, Department of Economics.
    9. Yu-Lin Wang & Hsiu-Yun Lee, 2009. "Rules versus discretion on the choice between exchange-rate-targeting and monetary-aggregate-targeting," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 12(1), pages 43-55.
    10. Quintero Otero, Jorge David & Padilla Sierra, Alcides de Jesús, 2024. "Impacto de la sincronización sub-nacional sobre el comportamiento de los ciclos nacionales en economías emergentes con inflación objetivo," Documentos Departamento de Economía 54, Universidad del Norte.
    11. Kollmann, Robert, 2005. "Macroeconomic effects of nominal exchange rate regimes: new insights into the role of price dynamics," Journal of International Money and Finance, Elsevier, vol. 24(2), pages 275-292, March.
    12. Alexandre Cunha, 2013. "On the relevance of floating exchange rate policies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(2), pages 357-382, June.
    13. Cunha, Alexandre B., 2005. "A Direct Proof of the First Welfare Theorem," Insper Working Papers wpe_30, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    14. Valentyna Ozimkovska, 2016. "Volatility of industrial production growth and characteristics of optimal currency areas in EU-12 countries," International Economics and Economic Policy, Springer, vol. 13(4), pages 563-591, October.
    15. Duarte, Margarida, 2003. "Why don't macroeconomic quantities respond to exchange rate variability?," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 889-913, May.

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    More about this item

    Keywords

    Exchange rate regimes; Monopolistic competition; Price rigidities; Pricing-to-market;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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