To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth

Abstract

We study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post-Bretton Woods period, using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables. In contrast with previous studies, we find that, for developing countries, less flexible exchange rate regimes are associated with slower growth, as well as with greater output volatility. For industrial countries, regimes do not appear to have any significant impact on growth. The results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature. (JEL F31, F41)

Openness and inflation volatility: Panel data evidence

“…3 see for example Easterly et al (2001) and Levy-Yeyati and Sturzenegger (2003). The results presented in this paper indicate that the relationship between openness and in ‡ation volatility is more systematic, i.e.…”

“…Consequently we focus on categories 1 4. 3 0 In an important study, Levy-Yeyati and Sturzenegger (2003) propose an alternative de facto classi…cation of the exchange rate regime that utilises information on currency reserves in addition to the nominal exchange rate.…”

The Political Economy of Seigniorage

“…Although we collected data for 178 countries, missing values for several variables reduce the number of countries in our estimations to around 100. The sources of political and institutional data are: the Cross National Time Series Data Archive (CNTS); the Polity IV dataset; 6 Gwartney and Lawson (2002) Tables (PWT 6.1), 12 Euromoney creditworthiness ratings, 13 Cukierman et al (1995), 14 Dollar and Kraay (2002), 15 and Levy-Yeyati and Sturzenegger (2003). 16 To investigate the main political, institutional and economic determinants of seigniorage levels across countries and time, we estimate panel data models, controlling for countries' fixed effects.…”

What Should Central Banks Target? Evidence on the Impact of Monetary Policy Regimes on Economic Growth

“…To address the problem of instrument proliferation 15 , the estimation in the third column uses the single lag of the variables as instruments while the estimation in the fourth column uses the collapsed instrument matrix approach in Roodman (2009 0.091 0.131 * significant at 10%, ** significant at 5%, *** significant at 1% Year effects and intercept are included but not reported. Estimation with random effect also includes dummy variables for region, landlocked, island, and advanced and emerging economy which are commonly used in the literature, while the average of output per worker between 1970 and 1973 is used for the initial output per worker, as in Levy- Yeyati and Sturzenegger (2003). Standard errors of OLS estimation are robust and clustered at country level.…”

“…Frankel and Rose (2002) also provide indirect evidence that currency union, as the strongest form of fixed exchange rate, could promote economic growth through its positive effect on trade 6 . Levy- Yeyati and Sturzenegger (2003) and Husian et al (2005), on the contrary, show that a flexible exchange rate arrangement achieves higher growth rate. One of the explanations of the mixed results may rest on the evidence provided by Aghion et al (2009).…”