To float or to sink? Revisiting the causal effects of exchange rate regimes. [Working paper]

Shuraeva, Arina; Shanaev, Savva; Ghimire, Binam

Abstract

This study proposes a novel instrumental variable construction procedure based on international trade concentration that has a sufficiently strong first stage for exchange rate policy choice globally and applies it to revisit the causal effects of exchange rate regimes on macroeconomic outcomes. Fixed exchange rates are shown to cause lower economic growth rates, higher volatility of output and inflation, and higher unemployment, without reducing average inflation. These effects persist even when monetary unions are excluded from the sample, across subsamples with varying levels of per capita income and institutional quality and is robust to alternative regime classifications as well as to property rights, human capital, and trade openness controls.

Citation

SHURAEVA, A., SHANAEV, S. and GHIMIRE, B. 2020. To float or to sink? Revisiting the causal effects of exchange rate regimes. [Working paper]. SSRN [online]. Available from: https://doi.org/10.2139/ssrn.3633069

• Working Paper Type: Working Paper
• Deposit Date: Aug 20, 2024
• Publicly Available Date: Aug 20, 2024
• Keywords: Exchange rates; Currency exchange; Macroeconomics
• Public URL: https://rgu-repository.worktribe.com/output/2439992
• Publisher URL: https://doi.org/10.2139/ssrn.3633069