Exchange Rate Regimes and Business Cycles: An Empirical Investigation

Fatma Erdem and Erdal Ozmen ()

No 1404, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

Abstract: This paper investigates the impacts of domestic and external factors along with exchange rate regimes on business cycles in a large panel of advanced and emerging market economies by employing panel logit, cointegration and autoregressive distributed lag model estimation procedures. The results for classical business cycles suggest that emerging market economies tend to experience much deeper recessions and relatively steeper expansions during almost the same duration. The probability of expansions significantly increases with exchange rate regimes flexibility. Our results, different from the bipolar view, strongly support exchange rate regime flexibility for both AE and EME other than the East Asian countries. The impacts of external real and financial shocks and domestic variables are significantly greater under managed regimes as compared to floats. Our results strongly suggest that the evolution and determinants of both classical business and growth cycles are not invariant to the prevailing exchange rate regimes.

Keywords: Business cycles; Exchange rate regimes; Emerging markets. (search for similar items in EconPapers)
JEL-codes: C33 E32 F33 F41 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2014-06, Revised 2014-06
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon, nep-opm and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://erc.metu.edu.tr/en/system/files/menu/series14/1404.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Exchange Rate Regimes and Business Cycles: An Empirical Investigation (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:met:wpaper:1404

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