To Float or to Sink? Revisiting the Causal Effects of Exchange Rate Regimes

30 Pages Posted: 15 Jul 2020

See all articles by Arina Shuraeva

Arina Shuraeva

University of London; University of Northumbria at Newcastle

Savva Shanaev

Northumbria University

Binam Ghimire

Robert Gordon University - Aberdeen Business School; University of Northumbria at Newcastle

Date Written: June 22, 2020

Abstract

This study proposes a novel instrumental variable construction procedure based on international trade concentration that has a sufficiently strong first stage for exchange rate policy choice globally and applies it to revisit the causal effects of exchange rate regimes on macroeconomic outcomes. Fixed exchange rates are shown to cause lower economic growth rates, higher volatility of output and inflation, and higher unemployment, without reducing average inflation. These effects persist even when monetary unions are excluded from the sample, across subsamples with varying levels of per capita income and institutional quality and is robust to alternative regime classifications as well as to property rights, human capital, and trade openness controls.

Keywords: exchange rate regime, fixed exchange rate, economic growth, causal inference

JEL Classification: C26, F31, O24, O27

Suggested Citation

Shuraeva, Arina and Shuraeva, Arina and Shanaev, Savva and Ghimire, Binam, To Float or to Sink? Revisiting the Causal Effects of Exchange Rate Regimes (June 22, 2020). Available at SSRN: https://ssrn.com/abstract=3633069 or http://dx.doi.org/10.2139/ssrn.3633069

Arina Shuraeva

University of London ( email )

Senate House
Malet Street
London, WC1E 7HU
United Kingdom

University of Northumbria at Newcastle ( email )

Pandon Building
208, City Campus East-1
Newcastle-Upon-Tyne, Newcastle NE1 8ST
United Kingdom

Savva Shanaev (Contact Author)

Northumbria University ( email )

Pandon Building
208, City Campus East-1
Newcastle-Upon-Tyne, Newcastle NE1 8ST
United Kingdom

Binam Ghimire

Robert Gordon University - Aberdeen Business School ( email )

Garthdee Road
Aberdeen AB10 7QE
United Kingdom

HOME PAGE: http://www.banksandmarkets.wordpress.com

University of Northumbria at Newcastle ( email )

Aberdeen Business School, Robert Gordon University
Garthdee House, Garthdee Road
Aberdeen, AK Scotland NE1 8ST
United Kingdom

HOME PAGE: http://www.banksandmarkets.wordpress.com

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