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Does the exchange rate regime affect macroeconomic performance : evidence from transition economics

Author

Listed:
  • Domac, Ilker
  • Peters, Kyle
  • Yuzefovich, Yevgeny
Abstract
To examine whether a country's exchange rate regime has any impact on inflation and growth performance in transition economies, the authors develop an empirical framework that addresses some of the main problems plaguing empirical work in this strand of the literature: the Lucas critique, the endogeneity of the exchange rate regime, and the sample selection problem. Empirical results demonstrate that the exchange rate regime does affect inflation performance. the results suggest that: 1) Transition countries with intermediate arrangements might reduce inflation if they were to adopt a fixed regime. 2) Switching from a floating regime to an intermediate regime might not reduce inflation. 3) An unanticipated float--when a country whose fundamentals make it unlikely to adopt another regime adopts a floating regime--results in lower inflation. Based on their results, it is not possible to infer more about one particular exchange rate regime being superior to another in terms of growth performance. But empirical findings do underscore the different effects that policy variables--and other variables influencing economic activity--have on growth under different exchange-rate arrangements.

Suggested Citation

  • Domac, Ilker & Peters, Kyle & Yuzefovich, Yevgeny, 2001. "Does the exchange rate regime affect macroeconomic performance : evidence from transition economics," Policy Research Working Paper Series 2642, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2642
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

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    3. Cruz-Rodríguez, Alexis, 2022. "Exchange arrangements and economic growth. What relationship is there?," MPRA Paper 113897, University Library of Munich, Germany.
    4. Gancho Ganchev & Ivan Todorov, 2021. "Taxation, government spending and economic growth: The case of Bulgaria," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 7(3), pages 255-266.
    5. Rajmund Mirdala, 2013. "Real Output and Prices Adjustments Under Different Exchange Rate Regimes," William Davidson Institute Working Papers Series wp1064, William Davidson Institute at the University of Michigan.
    6. Biswajit Mohanty & N.R. Bhanumurthy, 2014. "Exchange Rate Regimes and Inflation: Evidence from India," International Economic Journal, Taylor & Francis Journals, vol. 28(2), pages 311-332, June.
    7. Petreski, Marjan, 2009. "Exchange-rate regime and economic growth: a review of the theoretical and empirical literature," Economics Discussion Papers 2009-31, Kiel Institute for the World Economy (IfW Kiel).
    8. Petreski, Marjan, 2014. "Grooming Classifications: Exchange Rate Regimes and Growth in Transition Economies," MPRA Paper 54473, University Library of Munich, Germany.
    9. Chen Ku‐Hsieh, 2021. "Depreciate to save the economy? An empirical evidence worldwide," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1563-1585, January.
    10. Petreski, Marjan, 2009. "Analysis of exchange-rate regime effect on growth: theoretical channels and empirical evidence with panel data," Economics Discussion Papers 2009-49, Kiel Institute for the World Economy (IfW Kiel).
    11. Mirdala, Rajmund, 2012. "Macroeconomic Aspects of Real Exchange Rate Volatility in the Central European Countries," MPRA Paper 40910, University Library of Munich, Germany.
    12. Zoran Grubišiæ & Sandra Kamenkoviæ & Aleksandar Zdravkoviæ, 2018. "Impact of government balance and exchange rate regime on current account during the economic cycle: evidence from CEE countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(1), pages 309-336.

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