Does the Nominal Exchange Rate Regime Matter?

Author/Editor:

Jonathan David Ostry ; Anne Marie Gulde ; Atish R. Ghosh ; Holger C. Wolf

Publication Date:

November 1, 1995

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The effect of the exchange rate regime on inflation and growth is examined. The 30-year data set includes over 100 countries and nine regime types. Pegged regimes are associated with lower inflation than intermediate or flexible regimes. This anti-inflationary benefit reflects lower money supply growth (a discipline effect) and higher money demand growth (a credibility effect). Output growth does not vary significantly across regimes: Countries with pegged regimes invest more and are more open to international trade than those with flexible rates, but they experience lower residual productivity growth. Output and employment are more variable under pegged rates than under flexible rates.

Series:

Working Paper No. 95/121

Subject:

English

Publication Date:

November 1, 1995

ISBN/ISSN:

9781451854329/1018-5941

Stock No:

WPIEA1211995

Format:

Paper

Pages:

43

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