Business Cycles and the Exchange Rate System: Some International Evidence

56 Pages Posted: 20 Sep 2001 Last revised: 10 Jan 2002

See all articles by Marianne Baxter

Marianne Baxter

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

Alan C. Stockman

University of Rochester - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 1988

Abstract

This paper investigates empirically the differences in time?series behavior of key economic aggregates under alternative exchange rate systems. We use a postwar sample of 49 countries to compare the behavior of output. consumption, trade flows, government consumption spending, and real exchange rates under alternative exchange rate systems (pegged, floating, and systems such as the EMS). We then examine evidence from two particular episodes, involving Canada and Ireland, of changes in the exchange rate system. Aside from greater variability of real exchange rates under flexible than under pegged nominal exchange rate systems, we find little evidence of systematic differences in the behavior of other macroeconomic aggregates or international trade flows under alternative exchange rate systems. These results are of interest because a large class of theoretical models implies that the nominal exchange rate system has important effects on a number of macroeconomic quantities.

Suggested Citation

Baxter, Marianne and Stockman, Alan C., Business Cycles and the Exchange Rate System: Some International Evidence (August 1988). NBER Working Paper No. w2689. Available at SSRN: https://ssrn.com/abstract=284048

Marianne Baxter (Contact Author)

Boston University - Department of Economics ( email )

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Boston, MA 02215
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National Bureau of Economic Research (NBER)

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Alan C. Stockman

University of Rochester - Department of Economics ( email )

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Rochester, NY 14627
United States
585-275-7214 (Phone)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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