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Effective Exchange Rate Classifications and Growth

  • Justin M. Dubas
  • Byung-Joo Lee
  • Nelson C. Mark

We propose an econometric procedure for obtaining de facto exchange rate regime classifications which we apply to study the relationship between exchange rate regimes and economic growth. Our classification method models the de jure regimes as outcomes of a multinomial logit choice problem conditional on the volatility of a country's effective exchange rate, a bilateral exchange rate and international reserves. An `effective' de facto exchange rate regime classification is then obtained by assigning country-year observations to the regime with the highest predictive probability obtained from the estimation problem. An econometric investigation into the relationship between exchange rate regimes and GDP growth finds that growth is higher under stable currency-value regimes. Significant asymmetric effects on country growth from not doing what is said are found for nonindustrialized countries. Countries that exhibit `fear of floating' experience significantly higher growth.

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File URL: http://www.nber.org/papers/w11272.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11272.

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Date of creation: Apr 2005
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Handle: RePEc:nbr:nberwo:11272
Note: IFM
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  1. Paolo Mauro & Grace Juhn, 2002. "Long-Run Determinants of Exchange Rate Regimes; A Simple Sensitivity Analysis," IMF Working Papers 02/104, International Monetary Fund.
  2. Bordo, Michael D & Flandreau, Marc, 2001. "Core, Periphery, Exchange Rate Regimes and Globalization," CEPR Discussion Papers 3077, C.E.P.R. Discussion Papers.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
  4. Jeffrey A. Frankel & Shang-Jin Wei, 1993. "Emerging Currency Blocs," NBER Working Papers 4335, National Bureau of Economic Research, Inc.
  5. Sebastian Edwards & Eduardo Levy Yeyati, 2003. "Flexible Exchange Rates as Shock Absorbers," NBER Working Papers 9867, National Bureau of Economic Research, Inc.
  6. Frankel, Jeffrey & Schmukler, Sergio L. & Serven, Luis, 2004. "Global transmission of interest rates: monetary independence and currency regime," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 701-733, September.
  7. Aasim M. Husain & Ashoka Mody & Nienke Oomes & Robin Brooks & Kenneth Rogoff, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 03/243, International Monetary Fund.
  8. Jeffrey A. Frankel, 2003. "Experience of and Lessons from Exchange Rate Regime in Emerging Economies," NBER Working Papers 10032, National Bureau of Economic Research, Inc.
  9. Atish R. Ghosh & Anne-Marie Gulde & Holger C. Wolf, 2003. "Exchange Rate Regimes: Choices and Consequences," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072408, June.
  10. repec:rus:hseeco:123927 is not listed on IDEAS
  11. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2014. "Addicted to Dollars," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 1-50, May.
  12. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate Of The Effect Of Common Currencies On Trade And Income," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 437-466, May.
  13. Jay C. Shambaugh, 2004. "The Effect of Fixed Exchange Rates on Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 300-351, February.
  14. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May.
  15. Eduardo Levy-Yeyati & Federico Sturzenegger, 2003. "To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth," American Economic Review, American Economic Association, vol. 93(4), pages 1173-1193, September.
  16. Sebastian Edwards, 2001. "Dollarization and Economic Performance: An Empirical Investigation," NBER Working Papers 8274, National Bureau of Economic Research, Inc.
  17. Hans Genberg & Alexander K. Swoboda, 2005. "Exchange Rate Regimes: Does What Countries Say Matter?," IMF Staff Papers, Palgrave Macmillan, vol. 52(si), pages 8.
  18. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  19. repec:spo:wpecon:info:hdl:2441/622 is not listed on IDEAS
  20. Klein, Michael W. & Shambaugh, Jay C., 2006. "Fixed exchange rates and trade," Journal of International Economics, Elsevier, vol. 70(2), pages 359-383, December.
  21. Alberto Alesina & Alexander Wagner, 2003. "Choosing (And Reneging On) Exchange Rate Regimes," Harvard Institute of Economic Research Working Papers 2008, Harvard - Institute of Economic Research.
  22. Broda, Christian, 2004. "Terms of trade and exchange rate regimes in developing countries," Journal of International Economics, Elsevier, vol. 63(1), pages 31-58, May.
  23. Michael W. Klein, 2002. "Dollarization and Trade," NBER Working Papers 8879, National Bureau of Economic Research, Inc.
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