COULD THE EXCHANGE RATE REGIME REDUCE MACROECONOMIC VOLATILITY?

Diego Alberto Bastourre () and Jorge Eduardo Carrera

Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] from ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]

Abstract: This study intends to determine the kind of relationship existing between the exchange rate regime and real volatility. After carefully revising theoretical and empirical results of previous research, a new methodology is proposed that corrects deficiencies found in previous empirical papers. The results show non-neutrality of the exchange rate regime. Particularly, it is found that the more rigid the regime, the greater the real volatility. Even when a classification of the exchange rate regime is performed allowing a comparison between consistent pegging and consistent floating, the former has a higher volatility. Countries with "fear of floating" or "inability of pegging" behavior exhibit lower volatility than consistent pegs.

JEL-codes: C23 F41 F33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2004
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Related works:
Working Paper: Could the Exchange Rate Regime Reduce Macroeconomic Volatility? (2004)
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