Exchange Rate Regimes and Economic Performance
UTDT, CIF Working Paper No. 2/01
43 Pages Posted: 3 Jun 2001
Date Written: February 2001
This paper studies the impact of exchange rate regimes on inflation, nominal money growth, real interest rates, and growth performance. We find that, for non-industrial economies, "long" pegs (defined as those lasting for five or more consecutive years) are associated with lower inflation than floats, but at the cost of an inferior growth performance. A similar tradeoff between inflation and growth is still present in the case of "hard" pegs (economies with currency boards or without separate legal tender), whose growth performance, as opposed to what is often suggested, does not differ significantly from that of conventional pegs. In contrast, "short" pegs clearly underperform floats, as they grow slower without providing any gains in terms of inflation.
Keywords: exchange rate regimes, growth, inflation, interest rates, hard pegs
JEL Classification: F31, F41, O47
Suggested Citation: Suggested Citation