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

Patrick Osakwe and Lawrence Schembri ()

No 99-07, Carleton Economic Papers from Carleton University, Department of Economics

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 expec-tations 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: collapsing exchange rate regimes; output variability; captital flows; exports; Mexico (search for similar items in EconPapers)
JEL-codes: F40 F41 (search for similar items in EconPapers)
Pages: 35 pages
Date: 1999-04, Revised 2002-08
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Citations: View citations in EconPapers (11)

Published: – revised version in Journal of International Economics, Vol. 57, No. 2 (August 2002), pp. 299–325

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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 (1999)
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