Working Paper: NBER ID: w11272
Authors: Justin M. Dubas; Byungjoo Lee; Nelson C. Mark
Abstract: 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.
Keywords: No keywords provided
JEL Codes: F30; F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exchange rate regimes (F33) | GDP growth (O49) |
| stable currency-value regimes (F33) | higher growth rates (O49) |
| fear of floating (F31) | higher growth compared to non-maintainers (O41) |
| de facto fixers (C78) | growth rate 1.3% higher than de facto floaters (F29) |
| switching from float to fixed exchange rate (F31) | increase per capita growth by 13% (O49) |
| de jure floaters behaving as de facto fixers (P37) | superior growth outcomes (I15) |
| not following through on exchange rate commitments (F31) | inferior growth (O40) |