Austerity and Recovery: Exchange Rate Regime Choice, Economic Growth and Financial Crises

43 Pages Posted: 30 Nov 2015

See all articles by Martin T. Bohl

Martin T. Bohl

University of Muenster

Philip Michaelis

University of Muenster - Faculty of Economics

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics; Balsillie school of international affairs

Date Written: November 28, 2015

Abstract

Our study investigates the role of the exchange rate regime to explain the empirical link between financial crises and economic activity. We examine the relationship between real per capita GDP growth, exchange rate regimes and the incidence of crises. Asymmetries are also explored. While exchange rate regimes of all types can promote positive economic growth disaggregation by region or country type yields significantly different results. Pegged regimes work best for emerging market economies while crawling regimes deliver the greatest boost to economic growth in the G20. However, unlike the extant literature, the foregoing positive influences are offset when economies are in a downturn. An important finding is that exchange rate regimes and financial crises interact. In almost all cases and types of financial crises, pegged regimes exert a negative impact on economic growth even after controlling for several economic factors.

Keywords: austerity, recovery, exchange rate regime, financial crises

JEL Classification: F43, E32

Suggested Citation

Bohl, Martin T. and Michaelis, Philip and Siklos, Pierre L., Austerity and Recovery: Exchange Rate Regime Choice, Economic Growth and Financial Crises (November 28, 2015). Available at SSRN: https://ssrn.com/abstract=2696440 or http://dx.doi.org/10.2139/ssrn.2696440

Martin T. Bohl

University of Muenster ( email )

Schlossplatz 2
D-48149 Muenster, D-48149
Germany

Philip Michaelis

University of Muenster - Faculty of Economics ( email )

Universitätsstr. 14-16
48143 Munster
Germany

Pierre L. Siklos (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Department of Economics
75 University Avenue W.
Waterloo, Ontario N2L 3C5
Canada
519-884-0710 Ext.. 3491 (Phone)

HOME PAGE: http://pierrelsiklos.com

Balsillie school of international affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada

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