Business Cycles and the Exchange Rate System: Some International Evidence

Marianne Baxter () and Alan Stockman

No 2689, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates empirically the differences in time?series behavior of key economic aggregates under alternative exchange rate systems. We use a postwar sample of 49 countries to compare the behavior of output. consumption, trade flows, government consumption spending, and real exchange rates under alternative exchange rate systems (pegged, floating, and systems such as the EMS). We then examine evidence from two particular episodes, involving Canada and Ireland, of changes in the exchange rate system. Aside from greater variability of real exchange rates under flexible than under pegged nominal exchange rate systems, we find little evidence of systematic differences in the behavior of other macroeconomic aggregates or international trade flows under alternative exchange rate systems. These results are of interest because a large class of theoretical models implies that the nominal exchange rate system has important effects on a number of macroeconomic quantities.

Date: 1988-08
Note: ITI IFM
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Published as "Business Cycles and the Exchange-Rate Regime" Journal of Monetary Economics, Vol. 23, No. 3, pp. 377-400, (May 1989).

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Working Paper: BUSINESS CYCLES AND THE EXCHANGE RATE SYSTEM: SOME INTERNATIONAL EVIDENCE (1988)
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