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Justin M. Dubas; Byung-Joo Lee; Nelson C. Mark (2005)
Types: Preprint
Subjects: jel: jel:F31, jel:F30, jel:F41
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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    • [11] Frankel, Je¤rey and Shang-Jin Wei (1995). “Emerging Currency Blocs,” in Hans Genberg, ed. The International Monetary System: Its Institutions and its Future, Springer, Berlin, 111-143.
    • [12] Ghosh, Atish A., Ann-Marie Gulde, Jonathan D. Ostry and Holger Wolf (2002). Exchange Rate Regimes: Choices and Consequences, Cambridge and London: MIT Press.
    • [13] Genberg, Hans and Alexander K. Swoboda, (2004). “Exchange-Rate Regimes: Does What Countries Say Matter?”mimeo Graduate Institute of International Studies, Geneva, Switzerland.
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    • CPI: IFS (line 64..ZF) No monthly data available for USSR, Czechoslovakia. Russian monthly CPI data derived from IFS data (CPI change over previous period, line 64XX..ZF), and inserted into database. In Australia, Belize, New Zealand, Papua New Guinea, Vanuatu, the CPI is reported quarterly. These quarterly data were interpolated to obtain monthly measures using Q1 as month 3, Q2 as month 6, Q3as month 9, Q4 as month 12.
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