Real Effects of Collapsing Exchange Rate Regimes: An Application to Mexico

Patrick Osakwe and Lawrence Schembri (lschembri@bank-banque-canada.ca)

Staff Working Papers from Bank of Canada

Abstract: This paper examines the impact of a collapsing exchange rate regime on output in an open economy in which shocks to capital flows and exports predominate. A sticky-price rational expectations model is used to compare the variability of output under the collapsing regime to that under alternative fixed and flexible regimes. Output is found to be most stable under a flexible rate. A counterfactual exercise is performed for Mexico, using the parallel market exchange rate as a proxy for the shadow flexible rate. The main finding is that, had Mexico been on a flexible rate for the past two decades, instead of a series of collapsing regimes, the variance of real output would have been reduced by half.

Keywords: Exchange; rates (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Pages: 41 pages
Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Real effects of collapsing exchange rate regimes: an application to Mexico (2002)
Working Paper: Real Effects of Collapsing Exchange Rate Regimes: An Application to Mexico (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:99-10

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