Title: Exchange-rate regimes and output volatility: empirical investigation with panel data

Authors: Marjan Petreski

Addresses: Financial Stability Department, National Bank of the Republic of Macedonia, Komplex Banki bb, 1000 Skopje, Macedonia

Abstract: The study aims to explore the relationship between exchange-rate regimes and output volatility, building on the flaws of the existing, though scarce literature. It discusses the measure of output volatility; explores the endogeneity bias doubted to be present in the literature; tests non-dynamic vs. dynamic model. The empirical investigation covers the post-Bretton-Woods era (1976–2006) and includes 169 countries. It is found that sufficiently large terms-of-trade shocks will spur output volatility under fixed, limited-flexible and flexible exchange-rate regime as compared with a floating regime, but the marginal effect is estimated to be the most severe under a peg (longer than five years).

Keywords: exchange rate regimes; output volatility; panel data; endogeneity bias; non-dynamic models; dynamic models; Bretton Woods Agreements; terms-of-trade; floating exchange rates; fixed exchange rates; limited-flexible exchange rates; flexible exchange-rates; currency peg; monetary economics; finance.

DOI: 10.1504/IJMEF.2010.030037

International Journal of Monetary Economics and Finance, 2010 Vol.3 No.1, pp.69 - 99

Published online: 03 Dec 2009 *

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