Does the Exchange Rate Regime Matter for Inflation and Growth?
International Monetary Fund, 1996 - Business & Economics - 13 pages
Although the theoretical relationships are ambiguous, evidence suggestsa strong link between the choice of the exchange rate regime and economicperformance. the paper argues that adopting a pegged exchange rate canlead to lower inflation, but also to slower growth in productivity. Itfinds that on average per capita GDP growth was slightly faster underfloating regimes than under pegged exchange regimes.
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Adopting a pegged Atish average Capital Controls central bank changes in parity Controlling for nominal coun countries that switched Countries with pegged Countries Without Capital country’s differential in favor domestic interest rates ECONOMICISSUES exchange rate regime exchange rate variability favor of pegged fixed and floating fixed exchange rates floating exchange rates floating rates floating regimes Frequently Adjusted Peg full anti-inflationary benefits GDP controlling higher investment Industrial and Upper inflation and growth inflation are better Inflation Performance inflation rates Infrequently Adjusted Peg Intermediate Floating Pegged intermediate regimes INTERNATIONAL MONETARY FUND jure classification lower inflation Lower Middle-Income lower under pegged lower-income countries macroeconomic performance Matter for Inflation money supply nomic nominal exchange rate nominal interest rates Open Economies Industrial Peg Frequently Adjusted pegged and floating pegged exchange rates Pegged Intermediate Floating pegged rates pegged regimes pegging the exchange percent under floating percentage points lower political costs Rate Regime Matter regime change residual inflation