Austerity and recovery: Exchange rate regime choice, economic growth, and financial crises

Martin T. Bohl, Philip Michaelis and Pierre Siklos

Economic Modelling, 2016, vol. 53, issue C, 195-207

Abstract: Our study investigates the role of the exchange rate regime to explain the empirical link between financial crises and economic activity. We examine the relationship between real per capita GDP growth, exchange rate regimes, and the incidence of crises. Asymmetries are also explored. While exchange rate regimes of all types can promote positive economic growth, disaggregation by region or country type yields significantly different results. Pegged regimes work best for emerging market economies while crawling regimes deliver the greatest boost to economic growth in the G20. However, unlike the extant literature, the foregoing positive influences are offset when economies are in a downturn. An important finding is that exchange rate regimes and financial crises interact. In almost all cases and types of financial crises, pegged regimes exert a negative impact on economic growth even after controlling for several economic factors.

Keywords: Austerity; Recovery; Exchange rate regime; Financial crises (search for similar items in EconPapers)
JEL-codes: E32 F43 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:53:y:2016:i:c:p:195-207

DOI: 10.1016/j.econmod.2015.11.017

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