Working Paper: NBER ID: w10673
Authors: Aasim Husain; Ashoka Mody; Kenneth S. Rogoff
Abstract: Drawing on new data and advances in exchange rate regimes' classification, we find that countries appear to benefit by having increasingly flexible exchange rate systems as they become richer and more financially developed. For developing countries with little exposure to international capital markets, pegs are notable for their durability and relatively low inflation. In contrast, for advanced economies, floats are distinctly more durable and also appear to be associated with higher growth. For emerging markets, our results parallel the Baxter and Stockman classic exchange regime neutrality result, though pegs are the least durable and expose countries to higher risk of crisis.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pegged regimes (F33) | lower inflation (E31) |
| pegged regimes (F33) | higher durability (L68) |
| economic development (O29) | effectiveness of exchange rate regimes (F33) |
| flexible regimes (P37) | higher growth (O49) |
| pegged regimes (F33) | higher frequency of crises (G01) |
| external shocks (F69) | crises under pegged regimes (F31) |