Exchange rate regimes, inflation and output volatility in developing countries

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. AbstractThe median developing country has had significantly higher inflation than the median advanced country since the early 1980s. A model is presented in which a developing country may reduce inflationary expectations by pegging its exchange rate to the currency of an advanced country (or a basket of such currencies), at the expense of forgoing its ability to compensate for real exchange rate shocks. Different types of pegged exchange rate offer varying degrees of anti-inflation credibility and of exposure to shocks. Tests on a sample of 80 developing countries support the empirical predictions of the model. Outline1.

Openness and inflation volatility: Panel data evidence

“…On the other hand Tornell and Velasco (2000) show that …xed rates can induce …scal laxity, and this may increase volatility. Bleaney and Fielding (2002) present a model in which tighter exchange rate pegs reduce in ‡ation volatility except in the case of the multi-lateral pegs maintained by the Francophone countries in Africa, which increase volatility because the peg prevents monetary authorities from o¤setting the e¤ects of external shocks.…”

“…30 In column 1 of Table 4 we add the exchange rate regime indicator (XRAT E) to our baseline regression and in column 2 we add the square of the exchange rate regime in order to test for non-linearities of the sort discussed by Bleaney and Fielding (2002). The additional control does not alter the role of openness and is statistically insigni…cant.…”

“…2 Two other studies, Bleaney and Fielding (2002) and Gruben and McLeod (2004), provide brief evidence on this topic.…”

Anchoring to the Euro (and Grouped Together)? The Case of African Countries

“…Among others, this is documented by Bleaney and Fielding (2002) for the CFA franc countries. The updated descriptive statistics for the post-1999 period displayed in section 2 confirm that, in fact, the African countries that have been pegged to the euro display a better inflation performance than the rest of the continent.…”

“…For the period of the peg to the French franc, Bleaney and Fielding (2002) found that the exchange rate regime helped the CFA countries to achieve significantly lower levels of inflation than the typical floating-rate developing country (although at the cost of higher macroeconomic volatility). As Table 1 shows, such conclusion seems to hold also for the period of the peg to the euro.…”